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