Finnair Group in nterim re eport 1 Ja anuary 30 June e 2014 - PDF document

Finnair Group in nterim re eport 1 Ja anuary – – 30 June e 2014 Improved p passenger lo oad factor a and progres s in cost sa avings were not enough h to compen nsate for the e weak unit r revenue dev velopment - Q2 operatio onal result s showed a lo ss of 19.6 m million euros s April–June e 2014  Tur rnover declin ed by 7.2% t to 565.7 mill ion euros (60 09.7).  The e operational l result was - -19.6 million euros (7.5).  Net t cash flow fr rom operating g activities s tood at 69.2 million euros s (101.2), an nd cash flow from inve estments tota alled -92.2 m million euros (-46.5). The cash flow fro om investme ents includes aircraft sale e and d leaseback a arrangement ts implement ted during th he review per riod as well a as advance p payments for r the first A350 ai ircraft.  Uni t cost per av vailable seat kilometre ex xcluding fuel, (CASK excl . fuel), decre eased by 2.4 per cent fro m the previous yea ar’s level.  Uni t revenue pe er available s seat kilometre e (RASK) fe ll by 5.8%.  Finn nair updates s its guidance e and estima ates its turnov ver in 2014 t o be significa antly lower th han in 2013 and d its 2014 op erational res sult to show a a significant loss. CEO Pekka a Vauramo: The second d quarter of 2 2014 was diff ficult. Finnair r’s turnover d declined by 7 7.2 per cent y year-on-year r to 565.7 million euro os. The factor rs affecting t he decrease e in turnover included a s ubstantial de ecline in unit revenue, the e loss of exte rnal turnover r resulting fro om the restru ucturing of av viation servic ces, and the weak develo opment of to ur operator Au urinkomatkat Suntours. T he impact of f the weak ec conomic pros spects in Fin nland on dom mestic deman nd and intensif fied internatio onal competi ition, particul larly in long- haul traffic, h had a negativ ve effect on o our unit revenue. Th he appreciati on of the eu ro against ou ur other prim mary revenue currencies c continued to weaken our unit revenue e from passe enger traffic. The challeng ging operatin ng environme ent has also been reflect ted in the revenue dev velopment o f other airline es. Our passen nger load fact tors in April– –June improv ved year-on-y year, and at the same tim me we made progress wi th our cost red duction progr ram. I am ple eased that ou ur cost reduc ction targets and market- -based appro oach have be een met with un derstanding also among our personn nel, and that we were abl e to reach ag greement on n the necessa ary cost reducti ons with som me of our per rsonnel grou ups. Howeve r, these posi tive steps we ere not suffic cient to compensate e for the drop p in revenue , and our ope erational res sult declined to a substan ntial loss at 1 9.6 million euros in a q quarter traditi ionally strong g for Finnair. . Achieving th he cost reduc ctions we are e pursuing a and reaching market leve l costs in all cost categor ries is absolutely e essential in th his financial situation. Fin nnair is very committed to o achieving a a competitive e cost level a and structure. Outlook Outlook on 15 August 2 014: The ongoing g uncertain e economic ou tlook in Euro ope and Asia a is contributi ing to weak c consumer de emand in our r main marke ets. Air traffic c is expected to grow mod derately in 20 014. Finnair, however, w will not be abl e to benefit from that gr rowth without t progress in its cost redu uction progra am and its ta rget cost stru ucture in pla ce.

Finnair estim mates its turn nover in 201 4 to be signi ficantly lowe er than in 201 13. Fuel cost ts are expect ted to remain n high. Due to o delays in th he personnel l cost reducti ion negotiatio ons and the unfavorable market cond ditions driving g the decline in unit reven nue, Finnair e estimates tha at its 2014 op perational re sult will show w a significan nt loss. Outlook issu ued on 2 Jun ne 2014: The ongoing g uncertain e economic ou tlook in Euro ope and Asia a is contributi ing to weak c consumer de emand in our r main marke ets. Air traffic c is expected to grow mod derately in 20 014. Finnair, however, w will not be abl e to benefit from that gr rowth without t progress in its cost redu uction progra am and its ta rget cost stru ucture in pla ce. Finnair estim mates its turn nover in 201 4 to be subs stantially lowe er than in 20 13. Fuel cos sts are expec cted to remai in high. The ou utcome of Fi nnair's ongo oing employe ee consultatio ons and cost t-saving nego otiations will have a significant im mpact on fina ancial perfor rmance in 20 014, and ther refore the co mpany will re econsider giv ving guidanc ce for its full-ye ear 2014 fina ancial perform mance after t the savings negotiations have been c concluded. Business E Environmen t The strengt hening of the e euro again st several re evenue curre ncies had a negative effe ect on the de evelopment o of passenger t traffic and ca argo revenue e in the secon nd quarter of f 2014. The w weakness of f the Finnish economy wa as reflected in home marke et demand in n both busine ess travel and d leisure traf ffic. Measure ed in availabl e seat kilometres, market capa acity between n Helsinki an nd Finnair’s E European de stinations gr rew by appro oximately 9.2 2 per cent yea ar-on-year in n the second quarter of 20 014. Market capacity bet tween Finnai ir’s Asian an d European destinations s grew by so me 2.8 per c cent. Finnair increased its s market sha are in Europe ean traffic, w hile in Asian traffic marke et share rem mained largely y unchanged d from the co omparison pe eriod.* Cargo traffic c volumes de eveloped pos sitively in Fin nnair’s main market areas s, but there w was continue ed pressure o on cargo traffic c unit revenu e due to mar rket overcap pacity in traffi c between E Europe, the N Nordic countr ries and Asia a. High fuel pr rices and neg gative develo opments in e exchange rat es with respe ect to cargo operations a also weakene ed the result fo or Finnair’s ca argo traffic. T The prolonge ed weak eco onomic situat ion in the eu urozone affec cts the dema and for air cargo o. The price of f the largest individual co ost factor of a airlines, jet fu uel, decrease ed slightly in the second quarter, but remains at a a high level. The US dol lar is a signif ficant expens se currency in Finnair’s o operations, w while the Japanese y yen is a signif ficant income e currency. T The US dolla ar depreciate d slightly aga ainst the eur ro in the seco ond quarter. The e substantial depreciation n of the yen a against the e euro, which b began in 201 13, continued d in the seco nd quarter. * Finnair’s e estimate. The e estimate is based on M MIDT data col llected on th e sales volum mes of trave l agencies an nd Finnair’s es stimates of ai irlines’ sales through thei ir own sales channels, su uch as websi ites. Strategy im mplementati on and part tnerships In May, Finn nair’s Board of Directors approved th e company’s s strategic ta rgets as part rt of Finnair’s s annual strategy wo ork. Finnair’s strategic obj jectives are t to double As sian revenues s by 2020 fro om the 2010 level, grow traffic via He elsinki by uti lising Finland d’s geograph hic location, a and create s hareholder v value and be e an attractive e investment. Finnair and fellow one w world alliance e partners Ja apan Airlines and British A Airways start ted a joint bu usiness for traffic betwe een Europe a and Japan o n 1 April 201 14. Previousl y, in July 20 13, Finnair jo oined the tra nsatlantic joi int business fo unded by fel low one worl d alliance m embers Ame erican Airline es, British Air rways and Ib beria. These joint busine sses have st tarted well an nd their first months were e in line with expectations s.