Finnair Oyj (FIA1S.HE), the flagship carrier of Finland, has reported a challenging first quarter for 2024, with a comparable earnings before interest and taxes (EBIT) loss of €12 million and a net result loss of €30 million. The airline faced significant operational obstacles including severe winter weather, labor strikes throughout Finland and Europe, and decreased load factors in certain regions.
Despite these difficulties, Finnair managed to keep operating expenses consistent with the previous year's levels, thanks in part to cost efficiency measures. The company also saw a 13% increase in ancillary revenue and ended the quarter with a strong cash position of €981 million. Finnair has revised its capacity growth guidance to around 10% and is gearing up for the upcoming summer season with network expansions and customer experience enhancements. No full-year EBIT margin guidance was provided.
Key Takeaways
- Finnair reported a comparable EBIT loss of €12 million and a net result loss of €30 million for Q1 2024.
- The company faced challenges from severe weather conditions, strikes, and decreased load factors.
- Cost efficiency actions helped keep operating expenses consistent with the previous year.
- Ancillary revenue increased by 13%, and the company maintained a strong cash position of €981 million.
- Finnair revised its capacity growth guidance to about 10% and is preparing for the summer season with various improvements.
- Fleet renewal plans are in place, with a focus on profitability before addressing narrowbody fleet needs.
Company Outlook
- Finnair anticipates strong demand for the summer season and continues to see strong yield development.
- The company is focused on revenue and profit maximization, with normalized booking patterns and operations.
- There is no expected significant change in competing capacities at Helsinki-Vantaa airport compared to pre-pandemic levels.
- Finnair is ahead of last year's pre-bookings for the summer season.
Bearish Highlights
- The airline experienced a decrease in load factors in specific regions.
- Strikes in Q1 and the lack of revenue impact from increased capacity led to a downgrade in full-year capacity growth expectations.
Bullish Highlights
- The company has improved access to debt markets, signing a €200 million secured revolving credit facility with Nordic banks.
- Finnair's equity ratio remained stable throughout the quarter.
Misses
- Finnair did not provide guidance for the full-year EBIT margin.
Q&A Highlights
- Finnair emphasized a focus on profitability and strong yields over load factors.
- The company is working with tough year-on-year comparisons for yields but is outperforming pre-pandemic levels.
- Cost management initiatives are expected to maintain similar cost levels going forward.
Finnair's Q1 2024 earnings call underscored the resilience of the airline amidst a turbulent operating environment. The company's strategic focus on cost efficiency and revenue maximization appears to be a steady course of action as it navigates through industry-wide challenges. With a robust cash position and plans for the busy summer season, Finnair is positioning itself for recovery and growth in the competitive aviation market.
Full transcript - None (FNNNF) Q1 2024:
Erkka Salonen: Good day, ladies and gentlemen. I’m Erkka Salonen from Finnair IR and it’s my pleasure to welcome you all to this Finnair’s First Quarter 2023 (sic) [2024] Earnings Call. I have here with me Finnair’s Interim CEO, Mr. Jaakko Schildt; and he is joined by our CFO, Mr. Kristian Pullola. I will now turn this call over to you, Jaakko. Please go ahead.
Jaakko Schildt: Thank you, Erkka, and good afternoon on my behalf for this afternoon, too. We are having -- we are just keeping this from Vantaa from our headquarters and it’s really extraordinary weather we are having here today. So, it’s almost 10 centimeters of snow, which we won’t see at the end of April. However, now to the quarter one. The headline is that yields and operative cash flow remained at a good level. Strikes had a negative impact on the revenue and the result. And before we go further to the slides and the presentation, I’m elaborating a little bit the quarter. It was definitely a different quarter to us from the operational perspective. First, we were hit by very severe winter conditions. So, we had a number of kind of bad snow days, which had an operational and also the result impact. Also, we had two political strikes in Finland, in addition to the -- some strikes in the European destinations, especially in Germany. And the political strikes, first strike was two days where we needed to cancel 550 flights. We just were able to operate a handful of flights and an impact of those two days per day was in millions. However, we were able to mitigate the impact towards the customers relatively well. We were able to find re-routings for two-thirds of the customers and one-third we needed to refund. And then for the two-week political strikes related to fuel supply when the Helsinki Airport was barely -- it was, I mean, the fuel supply to Helsinki Airport was a minimum, but we were able to once again mitigate the customer effect on that one. Our operational reliability, on-time performance and regularity was on a very good level, however it had naturally the cost implications to us and so on. And the next, let’s look at then the kind of key figures. The revenue decreased 1.9% year-on-year. Operating expenses remained on par with the previous year due to the cost efficiency actions, although the capacity increased by 4.4%. And the second bullet is actually excellent and very good news, because one of our strategic initiatives has been really focusing on the costs, and now in this quarter we can see that it’s definitely paying a dividend to hard work and cost control is important for any company, but also especially for the airlines, because the costs kind of carry us forward over the different economical cycles. Comparable EBIT was a loss. We were making loss. Comparable EBIT was minus €12 million and net result was minus €30 million. And of course, it is always a disappointment when you do a loss in a quarter, especially because we had six positive quarters behind us. But then if I just take a little bit of distance to this one and discuss a little overall how the Finnair and how the industry have been doing on the quarter one. I mean it is a seasonal business and this is what do we see and we have seen in the history too. As a benchmark and comparing it 2019, we made a loss of €16 million at the quarter one. Unit revenue was lower than compared to last year, but we are still living in an elevated kind of unit revenue environment. It is 20% higher than 2019. Number of passengers decreased and we saw on decreased passenger load factors in Far East, European and Domestic areas. But North America and Middle Eastern was really positive and especially on Asia I also would like to mention the Thailand. There our load factors were very good. Overall, we were landing at 72% mark at the quarter. On-time performance was 75%. What is behind our targets, but actually it is a very, very good result taking into account of the special nature of the quarter what we what we saw. And the customer satisfaction landing, the Net Promoter Score landed at 34, what is internationally a very good value. Next we are looking our strategy implementation and what have been the key -- what are the key highlights during the quarter on that area. I mean we successfully moved to a new era with our Finnair Plus program where we started to use Avios as a loyalty currency. There are new benefits baked into the program and the next steps on the Avios we are actually then having a possibility to swap the points and the currency between our partner BA program. A second bullet there it’s about our fleet. When the Russian airspace closed the 330 cannot do the longer routes via the north pole or the southern route and it can’t really fly to Asia. So we needed to find the work for and the efficient use for those airplanes and now we have -- during the quarter we located the second aircraft to Qantas and it has been a successful operation. Qantas is very happy about the cooperation and also the customers and now I’m happy to state that the whole 330 fleet is in efficient use. Also for the fleet and the utilization aircraft we used to have a four air -- narrowbody aircraft wet lease operations with British Airways (LON:ICAG). Those aircraft returned back to Finnair at the 4th of April. I mean it was still -- it was all the time at the Finnair, but basically we did the wet lease for the BA, but -- and these aircraft they are not visible in the figures as such, because they really started to love life of Finnair 1st of April. We submitted climate target validation to the Science Based Targets initiative. That is an important milestone in our path -- on our path towards the carbon neutrality. SBTi is an organization who helps the companies to define the plan, how quickly and how much you need to reduce your emissions to reach the goal set by the Paris Climate Agreement. And then in an AGM, AGM decided the reverse split of our shares and that was successfully completed during the quarter. Maybe to add then on the strategist theme, we today announced that we have gotten a rating from S&P, which improves the access of Finnair in the debt markets. And we also announced that we have today signed a €200 million secured revolving credit facility with four Nordic banks, which further improves the good liquidity position that the company has and these are clearly kind of logical steps that we take under the building a sustainable balance sheet strategist stream that we’ve had. The last year was about fixing the equity through profitability and the rights issue. Now we are setting ourselves up for putting the refinancing for the 2025 maturities in place and both the facility, as well as the rating is the right step forward in that direction. Okay, thank you, Kristian, supplementing. All right, then let’s look at the income statement, I mean, briefly. The comparable result minus €12 million and result for the period minus €30 million and just repeating that the revenue was decreased by the strikes and also the lower load factor. What we see, especially on the Asia, Europe and also Domestic. And then there is a technical thing about the unused tickets, so the revenue recognition related to expired tickets, which is needed to do the change in this quarter, because there are actually less unused tickets. Well, and it’s a technical thing, how do we book those tickets and revenues in. Also in cargo, we did see a lower yields and we had a bigger capacity in cargo. But lately we saw some improvement on Asia and so on. But to describe the whole quarter, I mean, it is lower what we see earlier. On a positive note, our ancillary revenue increased by 13%. This is one of our key pillars for the strategic initiatives and I’m so happy to see that in addition to our good cost control of the ancillary revenue, the work with our ancillary revenue is bringing the results. So, moving forward, then let’s look at the cash. So, operating cash flow was very strong, €139 million. What is very typical for quarter one in our business, because we are selling the tickets for the summer and we can also see that the sold but unflown tickets, the amount is €26 million higher year-on-year. So it’s a significant amount. On an investment side, we have €32 million for investment and that’s really related to the aircraft heavy and base maintenance and engines. So we didn’t do any kind of aircraft investment or anything kind of abnormal. They’re just really running the normal business with the aircraft maintenance. A couple of other things to mention, all share issue transaction costs are paid now and loan and lease repayments are proceeding according to the plan, ending up the quarter with the very strong cash position, €981 million in total. Then let’s look at some of the KPIs. Our equity ratio remains stable and it’s a good result because of the negative net result for the period, and the gearing is moving in the right direction, landing to 177% mark, because of the strong operating cash flow during the period. Then looking forward, I mean, we have an extensive network and good offering from Helsinki. We have a new destination, Wroclaw in Poland and Tartu. We also go back to Nagoya in Japan. We are working with -- hard with the customer experience. Wide-body fleet cabin renewal will be completed by the summer. Last two aircraft are undergoing the modification actually just now and then the whole wide-body fleet 350s and 330s are modified. We also opened the new Schengen Lounge during the summer, so that is also what especially our loyal customers have been looking forward to for some time. We are well prepared for the summer. We have hired some summer workers to the summer units and so on, and also the hiring of the cabin crew and the pilots. What was started last year is the hiring and proceed -- and the training is proceeding well according to the plans. Then the guidance. I won’t read the whole guidance text through. The changes there that we are kind of managing and changing our approach to the capacity. Earlier we said that we have plans -- we are planning to increase the total capacity more than 10%. Now we are changing our approach on that one, that we are planning to increase our capacity approximately 10% and so on. So, it is not a big change and so on, but the capacity is something what we always need to be kind of very cautious in order to maintain a good bottomline result. And as a final note, the capacity increase is actually driven by more efficient use of our fleets in an essence. So, we haven’t been investing any new airplanes and things to increase the capacity. So, we are really sweating our assets off in order to get this capacity growth in place. This was my kind of run through of the slides and the quarter one for the Finnair and as the next, Erkka, I would transfer to you, I mean, is it time for the questions?
Erkka Salonen: Yes. Thank you, Jaakko. So, indeed, now would be a convenient time for any questions you may have. Please follow the operator’s instructions to present them.
Operator: [Operator Instructions] The next question comes from Pasi Väisänen from Nordea. Please go ahead.
Pasi Väisänen: Great. Thanks. This is Pasi from Nordea. Hopefully you can hear me. I have a couple of questions, so to start with regarding the end demand. So, I hear that you are saying that the demand has been very good and you already said that we are still on a very elevated yield environment. So, what is the reason you are actually downgrading the full year capacity growth expectations if the demand has been pretty okay? So, what are these kind of incrementally negative effects or drivers you have seen recently from the markets? And maybe secondly, regarding this investment program to a narrowbody fleet, so are we going to see some news regarding this investment on this year? And maybe lastly, when looking at the kind of your start of the year in the first quarter, could it be a kind of relevant assumption that you are not going to reach a target EBIT margin of 6% then on this year? We can start with this one. Thanks.
Kristian Pullola: So, maybe I’ll start. On the last one, you will unfortunately not get an answer from us. We are not providing guidance for the full year. As we speak, we’ll come back to that after the second quarter results. When it comes to capacity and the slight kind of change in guidance, clearly we did have some impact in Q1 that came from the strikes that Jaakko discussed, that meant that the first quarter was somewhat slower as we reported today. So, clearly that had an impact when we considered what to say when it comes to future capacity. Then it’s also clear that the increased capacity that we put in place during the first quarter, did not yet yield results, because we did see a -- we didn’t see a revenue impact from that, because load factors came down to the extent that the capacity additions didn’t show up in increased passengers and revenue. As Jaakko said, we are now looking carefully at how this pans out. Having said that, we see very strong demand for the seasonally strong summer months. Nothing has changed there. The yield development is also continuing to be strong and when we provided the original guidance, we were also saying that this capacity increase is going to be done with existing investments and the revenue outcome from the increased capacity will not be fully visible as a result of that. We were operating at elevated yields during, yeah, last yield -- last year and there was some expectation when it comes to yields normalizing during this year. So, again, I think, no drama here. It’s maybe more us showing that we are awake and we are monitoring the situation as we speak. But when it comes to summer, good demand is expected. Then the second question...
Jaakko Schildt: Fleet.
Kristian Pullola: Fleet. So, when it comes to fleet decisions, we have yet not been focused on them. Our focus has been on, first, turning around the profitability. It was -- as I said earlier, it was based on fixing the capital side of the balance sheet last year and it’s now about making sure that we refinance our 2025 maturities. After that, we do feel that it’s appropriate to come back to the narrowbody renewal question. And maybe just there, when you look at our fleet, the majority of the wide-body fleet is very new. Half of the narrowbody fleet is still very good for many years to come and it’s only half of the narrowbody fleet where we have renewal needs in the years to come and we’ll address those when the timing is right. We have now made, again, a couple of more steps in that direction. So, we’ll inform you then when decision -- when it’s decision time and that’s still going to be an investment program which happens over many years and if you then look at that over a multiyear period, the amounts start to be such that you can fund them from strong cash flow on an annual basis.
Pasi Väisänen: Okay. Great. I hear you. That was all from my side. Thanks.
Operator: The next question comes from Jaakko Tyrväinen from SEB. Please go ahead.
Jaakko Tyrväinen: Good afternoon, gentlemen. It’s Jaakko from SEB. Firstly, on the capacity guidance of around 10% growth, which includes the leased aircraft, could you provide a bit more color on how large a share of this increase will be in leases to other airlines and how much your kind of own operations capacity will go up?
Kristian Pullola: So, there is actually not that much difference between those two rates. The mix of the wet lease operations will just be different, because as Jaakko said, last year we had the flying for BA of the narrowbodies and we only had the Qantas operations with one plane operating during the latter part of the year and now this year will be more about the two planes with Qantas, which will be the wet lease operation, but from a capacity growth point of view, it’s there or thereabout, both will grow at a similar pace.
Jaakko Tyrväinen: Good. Thanks. Then a few words on the current booking situation. Last time in connection with Q4, you painted a rather optimistic picture on the summer season pre-bookings, which was also the case in this presentation. How things are looking now if you compare the pre-bookings compared to the same period last year?
Jaakko Schildt: We are actually ahead of the bookings for the summer and we are estimating -- compared to last year and we are estimating busy summer, and our special attention is that Aurinkomatkat sales selling the packages -- the tour operator packages is that’s really ahead of last year and that’s in amount and actually at the price point, so we’re looking really kind of for a busy summer.
Kristian Pullola: And you could kind of, if you then think about that on a longer scale, we are now looking at even more normal kind of booking patterns vis-à-vis last year. So in that sense, things have continued to normalize in this industry and in our operations.
Jaakko Schildt: Yeah. That’s correct. It’s really this element about the booking window and also earlier mentioned the unused ticket revenue. I mean, the both are kind of signs and a quarter one seasonality. To me, those are the kind of signs that we are leaving the crisis behind.
Jaakko Tyrväinen: Good. Thanks. Very helpful. And then on the competition, you should have pretty good visibility in terms of the competition from your Helsinki-Vantaa base for the summer season. How much there is a new kind of a competing capacity up versus previous year in Helsinki-Vantaa?
Jaakko Schildt: I mean, overall, if I just look at the years, maybe I would not comment really the pandemic years, because those are not comparable. But I don’t see a significant change on the competing amount capacities out of Helsinki for 2024, for this year versus the times before the pandemic.
Jaakko Tyrväinen: Okay. Great. Thanks. That’s all from my part.
Operator: The next question comes from Joonas Ilvonen from Evli. Please go ahead.
Joonas Ilvonen: Hi. It’s Joonas from Evli. Just coming back to the summer season questions. So, can I assume that you still see rather meaningful upside in terms of passenger load factors in Europe this summer season year-on-year?
Kristian Pullola: Maybe rather than talking about kind of load factors, as we’ve said earlier on the call, we do see good demand for summer, we see that the buying patterns have normalized and we continue to see yields that are on a strong level also for summer. And then, as Jaakko said, the interest and demand for Aurinkomatkat is really strong. That’s where we are. Then, how that then translates into loads will partly be dependent on how we grow capacity and how successful we are in getting the increased capacity to work immediately and so on. So, we are not operating and optimizing our business with loads. Loads is an outcome of our revenue and profit maximization that we try to do.
Joonas Ilvonen: Okay. That’s clear. Maybe you see still some lead to unique yields then later this year…
Kristian Pullola: Yeah. Again, I think, it is good to…
Joonas Ilvonen: …at least…
Kristian Pullola: … keep in mind that when it comes to yields, we are now working with pretty tough compares from last year, because last year yield levels were at a historically high level. So, particularly when it comes to year-on-year comparisons, we are now in a very tough crowd. But then when it comes to doing better than pre-pandemic, clearly, we are beating those yields as we speak.
Joonas Ilvonen: All right. That’s clear. Maybe another question. You were also quite successful in controlling operating costs in Q1. Was there anything special there in Q1 or should we expect that you are able to kind of achieve similar cost levels going forward?
Kristian Pullola: I mean, expectation is very clear that our initiatives and the work with the strategy stream concerning the cost is bringing the results through the year and for the coming years too.
Joonas Ilvonen: All right. That’s all from me. Thanks.
Kristian Pullola: Thank you.
Operator: There are no more questions at this time, so I hand the conference back to the speakers.
Erkka Salonen: As there are no further questions, we may conclude the call. Many thanks for all the excellent questions and joining the call. We wish you very nice day.
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