Welcome to

Finnair Capital Markets Day

22 May 2014, Helsinki

1

© Finnair | Capital Markets Day, 22 May 2014

Today’s Agenda Topic

Presenter

Pages

Welcome by the Chairman of the Board

Klaus Heinemann, Chairman

13:00

-

Delivering on Strategy

Pekka Vauramo, CEO

13:20

6-25

Network development and JBA's

Greg Kaldahl, SVP Resource Management

14:00

26-54

Break

14:30

Commercial Strategy- Closing the revenue gap

Allister Paterson, CCO

15:00

55-65

Cargo’s role in Asian growth

Juha Järvinen, Managing Director of Finnair Cargo

15:30

66-76

Break

15:45

Fleet and funding strategy

Erno Hildén, CFO

16:00

77-100

Closing remarks

Pekka Vauramo, CEO

16:40

-

Cocktails and informal discussion

2

Time

17:00

© Finnair | Capital Markets Day, 22 May 2014

The Finnair opportunity

Our strategic targets and roadmap to reaching them Pekka Vauramo, CEO Finnair Capital Markets Day, 22 May 2014

3

© Finnair | Capital Markets Day, 22 May 2014

Finnair is a network airline connecting Asia and Europe

More than 9 million passengers and MEUR 2,400 in revenue in 2013 4

Over 60 European and 15 long-haul destinations (Summer 2014)

NorthAtlantic 5%

Fleet of 77 aircraft, of which 44 operated by Finnair.

Leisure 11 %

Finland 4%

2013 ASK split

Asia 49 % Europe 31 %

© Finnair | Capital Markets Day, 22 May 2014

Major achievements since CMD 2012 Cost structure Commercial

Operations

Network Financing 5

© Finnair | Capital Markets Day, 22 May 2014

We have built one of the best operational airlines in the world... By focusing on:

2013 performance European benchmark*

Finnair

• Structure, size, governance

Punctuality

84.2%

89.4%

• Commitment to quality and safety

Regularity

98.9%

99.8%

• Operational processes

Bags (/1000 pax)

9.6

8.1

• Hub management

Connection reliability

98%

98.8%

• Vendor management

Safety

1st-3rd**

* Source: AEA ** JACDEC 2013 safety ranking. JACDEC =Jet Airliner Crash Data Evaluation Centre. 6

© Finnair | Capital Markets Day, 22 May 2014

...and improved cost efficiency & asset utilization Improved CASK 0,07

0,071

+6.0%

0,06

€ cents

0,070

0,05

-4.6%

0,04

0,071 +14.9%

-4.1%

+1.6%

-3.3%

0,03 0,02 0,01 0 2010

2011

CASK ex-fuel 7

2012 Fuel

16

0,069

2013

Block hours/day

0,08

Higher utilization 14

+1.3%

+3.6%

+0.6%

12 10 8 +7.6%

6

+7.8%

+8.4%

4 2 0 2010

2011

Narrowbody

2012

2013

Widebody © Finnair | Capital Markets Day, 22 May 2014

Finnair share and bond price development Finnair share price development 1 Jan 2012-16 May 2014 3,50 3,30 3,10

Finnair market cap MEUR 295

Finnair market cap 1 800 000 MEUR 378 (16 1 May 6002014) 000 1 400 000

(31 Dec 2011)

2,90

1 200 000

2,70

105,5 105,0 104,5 104,0

1 000 000 103,5

2,50 800 000

2,30

Finnair market cap MEUR 283

2,10 1,90

600 000 400 000

(3 Dec 2012)

103,0 102,5

1,70

200 000

102,0

1,50

0

101,5

Volume, shares 8

Finnair Bond price development since 27 Aug 2013

Close, EUR © Finnair | Capital Markets Day, 22 May 2014

Delivering on strategy for profitable growth Doubling Asian revenues by 2020 from 2010 level

Growing traffic via Helsinki by optimising its strategic location

Creating shareholder value - delivering 6% operational EBIT

9

© Finnair | Capital Markets Day, 22 May 2014

Doubling Asian revenues by 2020

10

© Finnair | Capital Markets Day, 22 May 2014

Doubling Asian revenue – Where are we now? Asian traffic revenue, MEUR CAGR 2014–2020 6.96%

42% of 2013 passenger revenue from Asian traffic 9%

3%

9% 42%

37%

Asia Domestic North Atlantic

Europe Leisure

* Based on guidance given on 7 May 2014:”Finnair estimates 2014 turnover to be close to 2013 levels.” 11

© Finnair | Capital Markets Day, 22 May 2014

Europe-Asia travel expected to increase more than 100% by 2020 Passenger flows and hub throughput (Asia and Europe, 2020E) PAX flows: Europe – Middle East 2020E /Asia (pax/yr)

130 million

2010

PAX throughput at major international airports (pax/yr) M=million

60 million

(2020E)

(2010)

M-East 180M

Notes: 1. Pax throughput includes both domestic, international and terminal passengers. Figures include both inbound and outbound pax calculated on basis of country-region pairs. 2. Data available for Mainland China airports does not disaggregate domestic and international passengers. 3. PAX throughput Middle East includes Dubai airport (112m); Doha (38m); Abu Dhabi (26m). China includes Beijing (155m); Guangzhou (88m); Shanghai Pudong (83m) Source: IATA, ATI database, BCG analysis; IATA Country Forecasts; BCG Analysis; World Bank. 12

CAGR +6.3%

China's top 3 hubs 300M

BKK 90M KUL HKG 80M SIN 120M 90M

© Finnair | Capital Markets Day, 22 May 2014

China’s second tier cities offer great potential 2010 GDP for urban clusters USD Billions

Urban clusters in China and their hub cities

Shanghai

527

Switzerland

527

Jingjinji

475

Belgium

469

Shandong

Jingjinji Huhehaote Taiyuan Central Guanzhong Yangzi mid-lower Chengdu

418

Austria

Chongqing Changzhutan

378

Guangzhou

Kunming Nanning

357 0

200

400

ChangchunHarbin Liao centralsouth Shandong Byland Hefei Nanjing Shanghai Hangzhou Nanchang Coast West Shenzhen Guangzhou (includes Foshan)

600 Source: Dominic Barton, 2013.

13

© Finnair | Capital Markets Day, 22 May 2014

JAPAN

Market share in EUR-JP vv Traffic*

Joint Business Agreement in Europe-Japan traffic strengthens our position in Japan 35% 30% 25% 20% 15% 10% 5% 0%

• After joining the SJB we are now a part of the largest joint business in Europe–Japan vv. traffic * Source: SRS Q2 2014. 14

© Finnair | Capital Markets Day, 22 May 2014

Our strengths in Asia – Europe transfer traffic Shortest and fastest Asia-Europe route Early mover in Europe-Asia direct flights One of world's most punctual airlines Helsinki airport hub Strong Nordic brand appeal On-going long-haul product development 15

© Finnair | Capital Markets Day, 22 May 2014

Growing traffic via Helsinki

16

© Finnair | Capital Markets Day, 22 May 2014

Highly efficient Helsinki hub supports AsiaEurope traffic growth Room for growth in Helsinki-Vantaa... • • •

17

3 runways 35 min minimum connection time Uncongested airspace

...with 24h rotation benefits to Asia •

Sustainable competitive advantage and cost benefits: – Fastest connections between NorthEastern Asia and Northern Europe – Very high aircraft utilisation in long-haul traffic – Less need for additional crew members due to flight time restrictions – Smaller fuel consumption due to shorter flight times

© Finnair | Capital Markets Day, 22 May 2014

Cost competitive European feeder network a necessity for Asian traffic growth European competitive landscape

We focus on

• Lowering cost base in short-haul flying – Labour costs – Possible alternative measures

• Continuing Flybe cooperation • Decision on short haul fleet renewal in the next 18-24 months

18

© Finnair | Capital Markets Day, 22 May 2014

Creating shareholder value

19

© Finnair | Capital Markets Day, 22 May 2014

Our key mid-term priorities The Tools Fleet strategy

Financing

Strategic partnerships

Network Strategy

Cargo

Leading Commercial Strategy

Safe, Efficient Operations

The Building Blocks New Digital Finnair

The Foundation Competitive Cost Structure 20

© Finnair | Capital Markets Day, 22 May 2014

We are well on track in achieving cost savings – flight crew labour costs still under negotiation Savings reached by 22 May 2014: MEUR 167

Total target MEUR 200

Phase I: MEUR 140

Other

136

4

23

Phase II: MEUR 60

17

Pilots

18

Cabin Technical & ground services

48

Other employee groups Phase I realised

21

17 Phase I additional saving reached

Phase II realised

Phase II remaining target

© Finnair | Capital Markets Day, 22 May 2014

We are building the foundation for growth • Competitive cost structure will be key for profitable growth, therefore cost savings remain in our focus.

Growth 2016  2015

• As a vital part of our topline growth, we continue to implement our new Commercial strategy and closing the identified revenue gap. • First A350s enter our fleet next year, and we are ready to grow our traffic building on our existing strengths. 22

Revenue enhancement

A350s

2014 Cost savings

© Finnair | Capital Markets Day, 22 May 2014

Thank you! Questions?

23

© Finnair | Capital Markets Day, 22 May 2014

Finnair Network Development

The Role of Schedule, Partnerships and Route Development In Building the Silk Road Greg Kaldahl, SVP Resource Management Finnair Capital Markets Day, 22 May 2014

24

© Finnair | Capital Markets Day, 22 May 2014

Silk Road Revisited In CMD 2012 we shared...

What Have We Done Since Then

• Industry complexity and changing demographics • The strength of Helsinki’s geographic position • Finnair’s strategy to win in dynamic times • Our methodology for entering new routes

• Opened two new seasonal routes to Xi’an and Hanoi • Entered joint business arrangements for Atlantic and Japan flying • Taken delivery of five A321 Sharklets and retired our small B757 fleet –

• Established our baseline long-haul fleet plan –

25

Operating cost advantage from commonality

Allows for more/less growth based on market conditions

© Finnair | Capital Markets Day, 22 May 2014

Today’s Agenda • Schedule Structure –

Helsinki Plan

• Joint Business Agreements – – –

What are they? What do they mean for Finnair? How do we get the most from these agreements?

• Route Development – – – 26

Are there any good markets left? Where do we go from here? Will we double Asian revenues by 2020? © Finnair | Capital Markets Day, 22 May 2014

Schedule Structure A Passenger Friendly Hub

27

© Finnair | Capital Markets Day, 22 May 2014

Helsinki offers Finnair a competitive advantage... HEL

LHR

FRA

AMS

CDG

Ease of transfer Uncongested airspace Runway capacity Cost competitiveness Geographic location to Asia Departure punctuality 28

© Finnair | Capital Markets Day, 22 May 2014

...but our growth has created some congestion ASIA & NORTH AMERICA

0700

1200

Hub 1700

congestion

2000

2400

EUROPE & DOMESTIC Europe double daily flights (incl. double daily+ markets) Asia afternoon bank Asia midnight bank Overnighting DOM flights 29

© Finnair | Capital Markets Day, 22 May 2014

Main bank feeder flights spilling

Bank

PLF%

Local pax %

Transit pax %

Afternoon bank

78 %

39 %

61 %

8 PM bank

66 %

60 %

40 %

Night bank

67 %

69 %

31 %

No connections

61%

X

X

Early EUR departures

62%

X

X

Growth in main bank would require adding feeder capacity 30

© Finnair | Capital Markets Day, 22 May 2014

Opportunity: four bank structure ASIA & NORTH AMERICA

0700

1200

1700

2000

2400

EUROPE & DOMESTIC Europe 4 times per day flights (incl. domestic) Asia afternoon bank Asia midnight bank Asia evening bank and North America midday bank Overnighting DOM flights 31

Potential to add two new European banks at 12:00 and 20:00 © Finnair | Capital Markets Day, 22 May 2014

Weekly take offs and landings

Four bank structure would defend our position in Helsinki hub Departures 300 200 100 0 -100 -200

Arrivals

-300 6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hour Two Banks

Four Banks

• In the four bank structure Finnair would utilize a higher share of the HEL airport capacity vs. the two bank structure leaving idle airport capacity available in HEL 32

© Finnair | Capital Markets Day, 22 May 2014

Four bank structure would enable growth and deliver additional benefits Four Bank Structure

Finavia structural changes would not be required

Unit cost saving potential

Capacity additions would support growth, reduce pressure on feeder congestion and enable even further growth

Potential for improved market presence due to early Europe departure 33

© Finnair | Capital Markets Day, 22 May 2014

Joint Business Agreements Friends In High Places

34

© Finnair | Capital Markets Day, 22 May 2014

Atlantic Joint Business Agreement Offered “On The Job” Experience • Finnair is 1% of AJB • New York and Toronto are less than 5% of Finnair total revenue • AA/BA/IB are willing partners in growing the business • Deal negotiation & implementation provided roadmap/learnings for more important Joint Business between Europe and Japan 35

© Finnair | Capital Markets Day, 22 May 2014

AJB Accomplishments • Joint business commenced as scheduled on July 1st 2013 • Implementation was flawless – no adverse customer experiences • AA/BA/IB now selling AY across Europe/North America – AY is in hundreds of corporate accounts

• Common Pricing in Europe & North America – AY has pricing personnel based in London and Dallas

• Governance structure is in place and functioning well

36

© Finnair | Capital Markets Day, 22 May 2014

But Is AJB Worth Anything? Share of passengers by Marketing Carrier on Finnair North Atlantic Traffic

Finnair North Atlantic Traffic RASK & Load Factor Development

100 % RASK* (€ Cent)

80 % 60 % 40 % 20 % 0% 2011 Q4

AY

2012 Q4

AA

BA

2013 Q4

IB

86%

4,70 4,60 4,50 4,40 4,30 4,20 4,10 4,00 3,90 3,80

84% 82% 80% 78% 76% 74% 72% 2011 Q4

2012 Q4

PLF%

2013 Q4

RASK

*RASK: Ticket Revenue with YR and Transfer Payments

37

© Finnair | Capital Markets Day, 22 May 2014

Siberian Joint Business Agreement Will Have Far More Impact • Finnair is 26% of SJB • Japan routes are 16% of Finnair total revenue • SJB is critical to Finnair’s continued success in this region

38

© Finnair | Capital Markets Day, 22 May 2014

SJB Accomplishments • Finnair has entered the SJB on April 1st • All regulatory approvals secured • All agreements with partners signed • Implementation was flawless – no adverse customer experiences • Common Pricing in Europe & Japan • First Steering Committee meeting achieved clarity around governance

39

© Finnair | Capital Markets Day, 22 May 2014

• Alignment with Japan Airlines protects Japan POS revenue • SJB becomes the largest Siberian joint venture –

Strongest partners



Best hubs



Most commercial relevance

• Larger presence will support revenue shift from unaligned carriers

Market share in EUR-JP vv Traffic*

For Finnair, SJB Is Both Defensive And Offensive Seats Europe - Japan 35% 30% 25% 20% 15% 10% 5% 0%

* Source: SRS Q2 2014. 40

© Finnair | Capital Markets Day, 22 May 2014

This Leaves Finnair With... • 21% of capacity and 18% of revenue operating under joint ventures • A more stable business – Periodic regional weakness can be offset by revenue sharing

• A platform for growth – Stronger sales presence, rationalized pricing, common agenda among partners supports new services

41

© Finnair | Capital Markets Day, 22 May 2014

Route Development Friends Can Only Take You So Far

42

© Finnair | Capital Markets Day, 22 May 2014

Finnair Has Steadily Grown Its Network in Asia 2000

43

ASK (M)

Destinations

2 056

3 © Finnair | Capital Markets Day, 22 May 2014

Finnair Has Steadily Grown Its Network in Asia 2005

44

ASK (M)

Destinations

6 176

6 © Finnair | Capital Markets Day, 22 May 2014

Finnair Has Steadily Grown Its Network in Asia 2010

45

ASK (M)

Destinations

11 150

9 © Finnair | Capital Markets Day, 22 May 2014

Finnair Has Steadily Grown Its Network in Asia 2014

46

ASK (M)

Destinations

15 463

15 © Finnair | Capital Markets Day, 22 May 2014

Are There Any Opportunities Left?

Yes! 1. 2. 3. 4.

47

China Russia Additional Pacific Rim Growth North America

© Finnair | Capital Markets Day, 22 May 2014

China Is Still Largely Untapped Cities with non-stop service to Europe (S 2014)

Cities with no non-stop service to Europe

China has 35 cities with a population over 2 million people with no non-stop flights to Europe 48

Source : Wikipedia

© Finnair | Capital Markets Day, 22 May 2014

New Russian destinations: Potential to improve Utilization and Support the Bank Structure Schedule

49

Departure from HEL

Arrival to HEL

22-23

06-07

© Finnair | Capital Markets Day, 22 May 2014

There Are Still A Number Of Underserved Cities In The Pacific Rim

50

© Finnair | Capital Markets Day, 22 May 2014

AJB Provides Opportunities For Profitable North America Operations

51

© Finnair | Capital Markets Day, 22 May 2014

Fleet Renewal Allows Finnair To Capitalize On These Opportunities... • A340s are replaced with modern, efficient A350s • A330s provide flex aircraft to adjust to market demand • A321s have replaced older, inefficient B757s – Lower trip costs – Similar unit costs to B757s

• Possibilities to expand contract operations – Lower cost European feed

52

© Finnair | Capital Markets Day, 22 May 2014

Bottom Line...

Finnair will grow in order to improve profitability and return on invested capital...

...not simply for the sake of growth!

53

© Finnair | Capital Markets Day, 22 May 2014

Our Schedule, Partnerships and Route Network Are Parts Of An Integrated Plan • We’re examining options to improve our schedule structure –

Relieve congestion in Helsinki



Provide additional choices for customers

• We’ve entered into strategic partnerships –

Create stability in the business



Provide platform for growth

• Our route network is healthy

54



Multiple opportunities for growth



More European flying can be moved to partners



Fleet renewal will support route development



Focus on profitable growth © Finnair | Capital Markets Day, 22 May 2014

Thank you! Questions?

55

© Finnair | Capital Markets Day, 22 May 2014

Commercial Strategy

Closing the Revenue Gap

Chief Commercial Officer Allister Paterson Finnair Capital Markets Day, 22 May 2014

56

© Finnair | Capital Markets Day, 22 May 2014

Our role is to capture Finnair’s portion or ‘Fair Share’ of the total market* 0.2%

3.8%

Home market 13.7%

30.9%

25.9% Europe North America

23.7%

A global industry: • Finnair participates in three global passenger flow markets • Finnair has a minimal effect on total pax market size 57

Asia Pacific

*FY 2013. © Finnair | Capital Markets Day, 22 May 2014

We have identified annual revenue opportunity of MEUR 80 = MEUR 80

• • 58

The model compares actual performance to an optimal world in terms of network & schedule quality and relative market performance. Takes into account Finnair’s 6th freedom profile and small home market. © Finnair | Capital Markets Day, 22 May 2014

We focus leveraging core strengths into revenue performance

Customer

Shortest and fastest Asia-Europe route

Network

Well established in European markets Early mover in Asian secondary cities

Highest worldwide safety ranking Loyal home market customer base

One of world's most on-time airlines

Strong Nordic brand appeal

Helsinki airport hub

Operational Performance

59

oneworld alliance member

Our new Commercial Strategy focuses on delivering revenue from:

60

1

Smart Product Investments

2

Leveraging Technology - "Digital Finnair"

3

Revenue Science Expertise

© Finnair | Capital Markets Day, 22 May 2014

1

Smart Product Investments

Introduced 2013–2014

Signature meals

61

Marimekko amenities

Expanded In-flight entertainment

Full flat seats Route guarantee

© Finnair | Capital Markets Day, 22 May 2014

In the pipeline – coming soon

Consumer choice products

62

Lounge renewals

Wireless on-board

Airbus 350 XWB

© Finnair | Capital Markets Day, 22 May 2014

2

Leveraging technology– Digital Finnair

Enhanced Sales Applications • Online flight/ancillary revenues • High utility mobile applications • CRM offers & airline services

63

Customer Experience Applications • Distributed IFE to personal devices • Enhanced onboard revenues

© Finnair | Capital Markets Day, 22 May 2014

Driving Demand and Optimizing Revenue Revenue Science Expertise 1

Enhanced Market Demand • • •

2

Improved Revenue Science • • •

64

Localized sales products/strategies Leveraging oneworld frequent fliers Joint Business Agreements

Competitive online price positioning World-Class revenue optimization World-Class analytics - leverage CRM & Frequent Flyer Program

© Finnair | Capital Markets Day, 22 May 2014

Driving demand: oneworld & JBAs help overcome Finnair’s small home market

oneworld consists of 15 airlines.... ...which transport 506 million passengers... ...to 152 countries and 992 destinations Long haul joint business agreements • Enable growth, decrease risks • Leverage networks & sales strength • Revenues are shared by capacity 65

Atlantic (AJB)

Siberian (SJB)

© Finnair | Capital Markets Day, 22 May 2014

MEUR 80 annual revenue opportunity will be captured • We will continue to make smart product investments • Exploiting technology is key to customer proposition & revenue growth • We are developing world-class revenue expertise to increase demand and optimize revenue • JVs/JBAs will enable growth and decrease risks 66

© Finnair | Capital Markets Day, 22 May 2014

Thank you! Questions?

67

© Finnair | Capital Markets Day, 22 May 2014

Differentiated cargo strategy – Driving Asian growth

Juha Järvinen, Managing Director, Finnair Cargo Finnair Capital Markets Day, 22 May 2014

Driving growth • What is Cargo’s role in supporting Asian growth? • How mega trends and macro dynamics support our growth strategy? • How Cargo’s differentiation strategy and feeder platform balances freight flows and enables growth in higher value freight exports?

69

© Finnair | Capital Markets Day, 22 May 2014

Cargo is a significant revenue generator in Finnair's long haul traffic •

Belly Cargo generates 17% of Finnair’s revenue on intercontinental routes and 11% of Airline business turnover*



Relative importance will grow as the A350 brings up to 50% more belly cargo capacity by 2020



Cargo supports our goal to double Asian revenues by 2020 Turnover 238 MEUR (2013)

147,000 Freight tonnes

Main shipment types 2 %2 % 1 % 12 % 11 %

79 %

General Cargo

Perishable

Mail

Dangerous goods

Pharma

Other special cargo *Q1 2014.

70

© Finnair | Capital Markets Day, 22 May 2014

Mega trends and macro dynamics support our growth strategy 2010

2020E

Shipment flows: Europe – Middle East/Asia (RTK’s/yr)

Freight through major international airports (RTK’s/yr)

CAGR +5.7%

Finnair operates in key freight trade lanes & growth markets in Asia, including West & Central China and Vietnam •

Cargo traffic between Asia and Europe is forecast to grow 5-6% annually

China's top 3 hubs HKG

BKK HAN SIN

*Source: IATA © Finnair | Capital Markets Day, 22 May 2014

China forecast to become the second largest freight market by 2017* Directionally balanced freight growth

• Fast growing middle class population and consumerism in China drive cargo growth: – High-end consumer goods from Europe/US – Healthcare & Pharmaceuticals – Infrastructure investments

• New administration committed to development of Western & Central regions – Lower production costs will drive relocation and growth of manufacturing in the Central and Western regions

Urban clusters in China and their hub cities

ChangchunHarbin Jingjinji Huhehaote Taiyuan Central Guanzhong Yangzi mid-lower Chengdu Chongqing Changzhutan Kunming Nanning

Liao centralsouth Shandong Byland Hefei Nanjing Shanghai Hangzhou Nanchang Coast West

Shenzhen Guangzhou (includes Foshan)

*Source: IATA Source: Dominic Barton, 2013. 72

© Finnair | Capital Markets Day, 22 May 2014

Building Cargo platform to leverage growth opportunities • Central European cargo hub secures enlarged catchment area • Differentiated product strategy secures balanced cargo flows, minimizes directionality challenge & controls yield development • New planned Cargo Terminal at Helsinki would improve quality and unit cost effectiveness 73

© Finnair | Capital Markets Day, 22 May 2014

Commercial focus in product portfolio and revenue optimisation Product Portfolio Design •



• •

74

Transformation from bulk general cargo carrier into specialized segmented service delivery Considerable growth potential in three specific air freight segments –

Perishables (Seafood, fresh food)



Healthcare & Pharmaceuticals



E-Commerce trade parcels

Growing Asian demand for high quality Pharmaceuticals and European fresh food Growth of e-commerce trade with fast B2C/B2B deliveries globally

Revenue Optimization & CRM • •

• •

Growth of global belly capacity will result in excess supply of cargo capacity Professional Revenue management and pricing is a necessity to optimize cargo revenues Majority of Cargo Sales comes through GSA partners (60-70%) Global & Regional key account management and CRM focus increases

© Finnair | Capital Markets Day, 22 May 2014

Growing cargo opportunity in Pharmaceuticals • Belgium and Germany are driving Pharmaceutical export growth in Europe • Global sourcing and distribution of Pharma favours Air Cargo

Source: Seabury 75

© Finnair | Capital Markets Day, 22 May 2014

Differentiated product strategy balances flows and enables growth in higher value shipments

76



Differentiated product strategy balances freight flow directionality and enables growth in specialized, higher value freight exports, especially perishables and pharmaceuticals



Finnair Cargo specializes in niche traffic flows/services forecast to grow during strategy period: European Perishables & Pharmaceuticals



Brussels was chosen as a new cargo hub due to its geographical potential and fast growth in pharmaceutical export shipments

© Finnair | Capital Markets Day, 22 May 2014

Brussels cargo hub increases revenue by +35% •

Total revenue to/from Central Europe +35% after Brussels cargo hub launch



Currently accounts for more than 20% of Finnair Cargo’s total revenue (approx. 50 MEUR p.a.)



Finnair is larger than Cathay Pacific, China Airlines & China Eastern Cargo in German exports



Finnair is now 20th largest export carrier in Belgium

2014 October 2013 150-200 tonnes weekly to/from BRU cargo hub to Asia

April 2013 Start of Brussels cargo hub

77

Target of 1 MEUR monthly belly contribution by 2015

April 2013March 2014

Finnair Change, Tonnage % y-o-y

Rank

Belgium

2,529

252 %

20

Germany

10,941

20 %

28

© Finnair | Capital Markets Day, 22 May 2014

We are set to leverage growth opportunities in Asia • • • •

Specialising in high value, growing niche traffic flows/services Enhancing revenue optimisation and CRM capabilities Increasing cost efficiency through automation and outsourcing Investing in feeder growth & infra to support growing volumes

Supporting Finnair’s goal to double Asian revenues by 2020

78

© Finnair | Capital Markets Day, 22 May 2014

Thank you! Questions?

79

© Finnair | Capital Markets Day, 22 May 2014

Fleet and funding strategy

Solid foundation for growth Erno Hildén, CFO Finnair Capital Markets Day, 22 May 2014

80

© Finnair | Capital Markets Day, 22 May 2014

Fleet and funding strategy

81

© Finnair | Capital Markets Day, 22 May 2014

All-Airbus fleet delivers operational efficiency 29 narrowbodies

Owned / Finance leased

15 widebodies

82

9 AIRBUS A319 Avg. age 12.7 years

10 AIRBUS A320 Avg. age 11.6 years

10 AIRBUS A321 Avg. age 8.0 years

7 AIRBUS A340 Avg. age 11.2 years

8 AIRBUS A330 Avg. age 4.4 years

© Finnair | Capital Markets Day, 22 May 2014

Airbus 350 XWB anchors long-haul growth plans Finnair is the first European carrier to receive next generation Airbus 350 XWB’s • A340 replacements with superior cost performance • Capacity growth also for congested Asian airports Competitive advantage:

• 20% more capacity: approximately 40 additional seats with lower trip cost • Estimated seat cost advantage up to -30% compared to Airbus 340* • Improved revenue position with superior product • 11 orders and 8 options

*Airbus estimate 83

© Finnair | Capital Markets Day, 22 May 2014

A350: Lower costs, more passengers Operational cash out expenses per seat, per year / normalized traffic

Estimated aggregate annual cash seat cost savings of c. 10MEUR per aircraft *Airbus estimate 84

© Finnair | Capital Markets Day, 22 May 2014

Business cabin convertibility adds flexibility

Front Business compartment

Flex compartment

Convertibility allows +/- 10% capacity adjustment 85

© Finnair | Capital Markets Day, 22 May 2014

Current order book facilitates growth Long-haul fleet plan

Number of aircraft

20

15

15

15

15

15

15

16

17

18

20

19

25 000 20 000

13

15 000

10

10 000 5

5 000

0

0 2010

86

30 000

Widebody ASKs (millions)

35 000

25

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

© Finnair | Capital Markets Day, 22 May 2014

Short-haul fleet plan: under review • The optimal solutions for the Finnair European feeder network are driven by: –

Finnair network characteristics and bank structure



Finnair’s cost position in European traffic



Use of partners

• Finnair’s A320 fleet is approaching mid-life –

Synergies from combining short and long haul operations with single type rating requirement



Future short-haul capacity decision to be made during next 18-24 months



Further investment in short haul capacity requires competitive cost position

• Flybe already operating 1/3 of Finnair network flights –

87

FlyBe operating Embraer regional jets and ATR turboprops

© Finnair | Capital Markets Day, 22 May 2014

Finnair funding strategy: liquidity, flexibility Positive operational cash flow

Maintaining high liquidity through the cycle

88

• Ability to produce positive operational cash flow even through the most challenging years in the industry* *2009 has been the only exception since 1997 • • • •

Target cash-to-sales 15-20% 5-year senior bond with competitive margin Undrawn 180 MEUR revolving credit facility Commercial paper program provides additional liquidity, if needed

Strong credit with additional debt capacity

• The current low indebtedness facilitates higher leverage potential by utilizing new aircraft as collateral • Current asset base mostly unencumbered

Hedging strategy and funding diversification

• Duration diversification to minimize short and mid-term volatility of jet fuel and F/X • Diversified funding base to secure availability and low cost of funding © Finnair | Capital Markets Day, 22 May 2014

New aircraft investments require capital 11 Airbus 350 XWBs on firm order* Aircraft investments and loan repayments 2014 – 2018, MEUR

Cumulative outflow

450

1600

400

1400

2014 – 2018, MEUR

Aircraft investments (incl PDP) Loan repayments

350 300 250

1200

Committed financing of ~MEUR 300 by Q4/15

1000 800

200

600

150 100

400

50

200

0

0 2014 Q2‐Q4

2015

2016

2017

2018

2014 Q2‐Q4

2015

2016

2017

2018

*Finnair also has options for an additional 8 A350s 89

© Finnair | Capital Markets Day, 22 May 2014

Funding plans optimize cost of capital • Finnair’s current aircraft financing portfolio •

Secured financing



Earlier generation ECA covered finances



Aircraft operating leases



Japanese operating leases with call option (JOLCO)

• The targeted future financing mix •

Secured financing (loans and finance leases)



Japanese operating leases with call option (JOLCO)



Aircraft operating leases

• Strong appetite to overweight the on-balance-sheet option for the A350XWBs because;

90



Very attractive purchase price for the A350s



Strong debt capacity enables further leverage



New generation of long haul aircraft with strong residual value outlook © Finnair | Capital Markets Day, 22 May 2014

Strong financial position supports business development and future investments Strong cash position

Strong balance sheet

MEUR

% 120 100

600

80

450

60 300

40

150

20

0

0 2010

-150

91

2011

2012

2013

Q1_2014

Net cash flow from operations Investments, gross Short term cash and cash equivalents

2010

2011

Equity ratio

2012 Gearing

2013

Q1_2014

Adjusted gearing

© Finnair | Capital Markets Day, 22 May 2014

Finnair indebtedness among the lowest in the sector Adjusted gearing on selected European carriers FY 2013 – Finnair accounting principles

600% 500% 400% 300% 200% 100% 0% Norwegian

AF-KLM

SAS*)

IAG

AY

Lufthansa

*) Includes IAS19 restatement & Preference Share Issue 92

© Finnair | Capital Markets Day, 22 May 2014

Additional debt capacity from owned fleet Total Fleet: 77 aircraft*

51% leased & encumbered

49% unencumbered

Total book value: €1bln, of which 65% unencumbered** *Aircraft owned or leased by Finnair **As of March 31, 2014 93

© Finnair | Capital Markets Day, 22 May 2014

Recent fleet transactions well-received •

Sale and leasebacks of three Airbus 330 aircraft and one A321 Sharklet aircraft completed during Q1/2014 –



In addition, Finnair agreed on the sale and leaseback of two A350 aircraft in Q1 2014



Sale and leaseback agreement for the fifth A321 Sharklet aircraft completed in Q2, all five financed with SLBs



MoU on the sale of three E170 aircraft announced in Q2, expected closing in H2/2014 –



94

Sale and leaseback of the fourth A330 aircraft to be completed in Q2 2014

Divestment of non-core assets to continue

The financial arrangements of A330 and A350 aircraft relate to Finnair’s long-haul fleet renewal program •

Total value of A330 and A350 arrangements 430 MEUR



In Q1, a loan of 107 MEUR from the European Investment Bank was repaid

© Finnair | Capital Markets Day, 22 May 2014

Closing the revenue and cost gaps – Reaching 6% operational EBIT

95

© Finnair | Capital Markets Day, 22 May 2014

Unit costs down by 14.1% since end of 2010... Bridge to Q1 2014 CASK € cents / ASK 6,0 5,8 5,6 5,4 5,2 5,0 4,8 4,6 4,4 4,2 4,0

-4,0% -3,9% -2,0%

5,07

-1,5%

-1,2%

-1,2%

-1,1%

-0,6%

-0,6%

-0,1%

0,0%

2,4%

-14,1%

4,36

* Includes purchased traffic from Flybe 96

© Finnair | Capital Markets Day, 22 May 2014

...across most cost categories RASK & CASK Development Airline business, % change 2013 vs 2010

RASK CASK CASK (ex-fuel) Fuel Staff Costs Depr. & Lease Exp Traffic Charges Mx Ground Hdlg Catering Other Exp

0,3 -2,1 -12,5 29,6 -8,4 -20,7 -3,8 -17,1 -17,9 -11,5 -9,4 %

97

© Finnair | Capital Markets Day, 22 May 2014

Asian traffic forecast to grow with wide body fleet Far East Asia traffic Millions of ASKs 25 000

20 000

15 000

10 000

5 000

0

2010 98

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

© Finnair | Capital Markets Day, 22 May 2014

...as are revenues from Asian traffic, targeting doubling the revenue from 2010 Total revenues from Asia traffic MEUR 2 500

2 000

1 500

1 000

500

0 2010

2011

2012

2013

2014* E

2015

2016

2017

2018

2019

2020

* Based on guidance given on 7 May 2014:”Finnair estimates 2014 turnover to be close to 2013 level.” 99

© Finnair | Capital Markets Day, 22 May 2014

6% EBIT margin target well within reach Improvement in RASK and CASK, 2015-2020

FEA RASK change

-4,0 %

1,0 %

0,0 % -3,0 %

0,0 % -3,5 %

0,0 % -3,5 %

-3,0 %

CASK ex-fuel change

0,3 %

6,1%

1,0 %

6,1%

0,3 %

6,0%

1,0 %

6,0%

0,3 %

2020

1,0 %

2019

0,0 %

1,0 % -0,5 %

-2,5 %

-0,1 %

-0,1 %

-4,0 %

2018

6,0%

4,0%

Total CASK Change 100

2017

0,3 %

2016

2,0 %

EBIT margin

2015

Other RASK change © Finnair | Capital Markets Day, 22 May 2014

Summary and conclusions – fleet and funding •

Finnair is targeting doubling its Asian revenues by 2020 and is gearing up with the A350XWB investment program with 11 firm orders and options for 8 additional aircraft to provide the necessary growth



Finnair is among the least-levered airlines in Europe, with additional debt capacity provided by a strong balance sheet, an attractively-priced orderbook for the A350XWBs, and the cash generated by our strong position in Asia-Europe traffic –



101

Nonetheless, the majority of the A350XWBs are planned to be taken on balance sheet

Solutions for European feeder network to be decided based on: –

Bank structure



Relative cost position of the European platform



Partnerships © Finnair | Capital Markets Day, 22 May 2014

Summary and conclusions – Profitability •

Our renewed commercial strategy aims to close the fair share revenue gap of MEUR 80



Finnair is well-positioned with its Asian strategy and already established in all the most important markets



Finnair will enjoy a competitive advantage from being the first European carrier to take delivery of the A350



Our cost savings programme is one of the most ambitious in the sector and we remain committed to deliver the targeted results by end of 2014



The financial target on 6% operational EBIT is unchanged and reachable by successful implementation of our strategy

102

© Finnair | Capital Markets Day, 22 May 2014

Thank you! Questions?

103

© Finnair | Capital Markets Day, 22 May 2014

Finnair is committed to delivering on strategy • Competitive cost structure and cost savings • Topline growth & closing the identified revenue gap • A350s entry into service • Growth by building on our existing strengths

104

Growth 2016  2015 Revenue enhancement

A350s

2014 Cost savings

© Finnair | Capital Markets Day, 22 May 2014