FINNAIR - GOING FOR PROFITABLE GROWTH · strategy of disciplined and profitable growth ... AC...
Transcript of FINNAIR - GOING FOR PROFITABLE GROWTH · strategy of disciplined and profitable growth ... AC...
Finnair at a glance
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• Profitable growth – Revenue to grow by 500 M€ by 2020
• Customer experience – Best European long haul business class, unique Nordic
customer experience
• People experience – Enable growth: Motivated and committed employees are
behind a good customer experience and high productivity.
• Digital transformation – More revenue, higher productivity and better customer
experience with digitalisation.
Finnair founded on 1 November 1923
First talks of long-haul expansion to the USA
Flights from Helsinki (via Copenhagen and Amsterdam) to New York start
Finnair receives its first wide-body aircraft, the DC-10 which carried 300 passengers
Start of Far Eastern expansion with direct flights to Bangkok
First European carrier to offer non-stop flight to Tokyo
First Western European airline to operate non-stop routes between Europe and China
Operating scheduled flights to 20 long-haul destinations across Asia and North America, in
addition to over 70 European destinations
1923
1930’s
1969
1976
Today
State of Finland
55.8%
Others 44.2%
Shareholders
Strategic focus areas
Brief history of Finnair’s long-haul expansion
Key revenue sources and split
1975
1983
1988
Travel Services
Travel agencies
EUR
2,317
million in
2016
Passenger transportation
Ancillary & retail
Cargo
78.4%
5.4%
7.5%
8.1%
0.6%
Key highlights
• Finnair offers smooth and fast
connections in the northern
hemisphere, with specific focus
on Asia
• Core Finnair strategy is to
double Asian traffic by 2018
from 2010 levels
• Currently, Finnair serves 17
Asian destinations across 9
countries, to a mix of financial
centres and leisure
destinations
• Finnair also serves 3 North
American destinations*
• Furthermore, as member of
the oneworld alliance and the
Japan-Europe / Atlantic Joint
Business Agreements, Finnair
benefits through partnerships
with among others: Japan
Airlines and British Airways for
Europe / Japan traffic and
American Airlines for North
Atlantic traffic
Finnair’s core strategy is to connect Europe and Asia…
70
European
cities
17 Asian
cities
... Supported by Joint Business Agreements to
strengthen position and geographical reach...
Atlantic
(AJB)
Japan-Europe
(SJB)
... in addition to membership in the broader oneworld alliance
*New York, Miami and Chicago, San Francisco from summer 2017 onwards 3
4
Key highlights
• Geographical advantage
(proximity) to serve fast-
growing Asian markets,
allowing most direct and
shortest routes
• Only European carrier
achieving 24 hr aircraft
rotations on many Asian
routes1
• On average over 2 hr less total
travel time relative to 1-stop
itineraries via European hubs
and over 4 hr less total travel
time relative to 1-stop
itineraries via Middle-Eastern
hubs3
• Benefit from Helsinki-Vantaa
Airport’s hub strategy, focused
on competitive positioning
(passenger convenience /
experience and cost) in
Europe–Asia traffic segment
Helsinki advantageous geographic location...
1. Finnair is the only EU carrier able to serve Asian routes in 24 hr rotations, with Singapore as the only current exception
2. FINAVIA airport charges comparison sample: cost calculator implying average cost per Pax for Airbus A340-300, based
on: international routes, MTOW 275 tonnes, MLW 192 tonnes, capacity 260, load factor 75%
3. Average time saved, compared to major European and Middle-Eastern hubs
...Supported by favourable geographic location and modern, efficient airport
(hub) infrastructure
26.1 31.6
53.4
76.3
100.1
0
25
50
75
100
HEL CPH ZRH VIE FRA
... Allows Finnair to be the only European carrier able to
operate 24 hr aircraft rotations on all but one of its current
Asian routes1... Sustainable competitive
advantage based on location:
Tokyo – Hamburg
Direct (no service) 9 014 km
Via Helsinki 9 021 km
Via Frankfurt 9 805 km
Via Dubai 12 882 km
Sustainable competitive advantage and cost benefits:
• Very high aircraft utilisation in long-haul traffic (highest utilisation
rates of any airline in terms of block hours for A330s in operation)
• Less need for additional crew members
• Lower fuel consumption due to shorter flight times
• Eco smart, sustainable choice as shortest route with a stop over
generates less emissions
Average cost per pax2 (€)
... And benefit from Helsinki-Vantaa Airport’s comparatively low
costs vs selected other main airports in Europe
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Key highlights
• For a carrier of Finnair’s size,
an all-Airbus fleet increases
operational efficiency and
flexibility by allowing
centralised spare parts, more
streamlined maintenance
programs, and optimised crew
allocation
• With an average fleet age of
10.1 years1, Finnair is on the
lower end of key peers
• The replacement of older
A340s with the new A350
aircraft will further improve the
average fleet age comparison
with key peers
All-Airbus wide-body fleet delivers strong economic
benefits…
1. Finnair operational fleet as of 30 Dec 2016, excluding Embraer & ATR fleet operated by Norra
2. Owned or finance lease
3. Will be phased out between by the end of 2017, being replaced by the A350. Only one of the A340s was in operation at end-December.
4. Total orders: 19
5. Peer average fleet age as of: 30 June 2016
Overview of Airbus fleet: 49 aircraft in total1 Average fleet age vs peer European network carriers
12.7
11.7
11.1
11.1
10.9
10.1
0 5 10 15
British Airways
Air France
SAS
KLM
Lufthansa
FinnairAircraft Type
7 Airbus A319 2
Owned2 Leased
7 Airbus A320 3
4 Airbus A321 7
3 Airbus A330 5
4 Airbus A340(3) 0
Airbus A350(4)
Years1,5
4 3
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Finnair was the first European carrier to receive the new
generation A350 in October 2015
Long-haul capacity to grow with A350 deliveries1
… With the new technology A350, the foundation of Finnairs
strategy of disciplined and profitable growth
Front Business compartment Flex compartment
Convertibility allows c. 10% capacity adjustment
1. First deliveries in Q4 2015, last deliveries in 2023
2. Compared with A340 aircraft, operational cash out expenses per seat, per year / normalized traffic
3. Estimated 25% fuel efficiency advantage compared to Airbus A340
Key highlights
• Finnair was the first European
carrier to receive the new
Airbus A350 in October 2015,
allowing:
– Enhanced in-flight
service offering
– 10-20% more
capacity2
– Estimated aggregate
annual seat cost
savings of c. 7-8
MEUR per aircraft,
including 25% fuel
efficiency
advantage3
• The replacement of A340 fleet
by the new A350 will increase
Finnair’s long-haul capacity by
approx. 10-20%, supporting
the core strategy to increase
revenues from Asia
... Which in addition to significant cost
advantages3, provides unique capacity
flexibility
Aircraft
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020
A330 A330 flex A340 A350
8%
15%
5%
11%
Capacity growth
( seats per year, %)
7
Fleet modernization and aircraft up gauging will
decrease unit costs1
Narrow body aircraft capacity set to grow with new aircraft
and up gauging2
… and narrow body fleet investments supporting unit cost
improvement and higher productivity
1. Excluding capital cost
2. More and larger aircraft, additional seats in current fleet
3. Estimated 25% fuel efficiency advantage compared to Airbus A340
Key highlights
• fleet investments support unit
cost improvement and higher
productivity:
– Introduction of A350s
– Replacement of the
A340s
– Increasing the
average narrow body
aircraft size
– Adding more seats to
current narrow body
fleet
• Fleet unit costs to decrease by
8% during the strategy period
of 2016-2018
Aircraft
Capacity growth
( seats per year, %)
0
5
10
15
20
25
30
35
40
2015 2016 2017 2018 2019 2020
A319 A320 A321
4%
7% 1% 1%
7
CASK
without growth or
modernization
2018 2017 2016
Fleet modernization Avg. seat nbr growth AC growth
CASK
-8%
2015 CASK
Current fleet plan enables ASK CAGR of 8-10% in 2017-2018
Available Seat Kilometres by fleet type 2014-2018
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015 2016 2017 2018
A330 / A340 A350 Narrow Body fleet - Base Narrow body fleet - Growth
Accelerated growth: Asian traffic to double by 2018*
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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
*from 2010 level, in ASK’s
20 M€ cost efficiency program proceeding
• Objective: 20 million euros of
permanent cost savings
• Realized savings of 9 million euros.
• Identified additional savings of 11 million
euros, an action plan ready.
• We invest in growth.
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Objective:
20 million euros of
cost efficiency
improvements
Revenue to grow by 500MEUR by the end of 2019
• We have specified a target to boost our
revenues by 500 million euros by the end of
2019.
• In addition to capacity growth to current and new
destinations, ancillary sales will play a key role in
achieving the target with new revenues streams
and improved distribution capabilities.
• The new cargo hub is to be completed in 2017,
which will enable increased revenue by
providing better facilities for premium services
for specialty goods.
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Ancillary and retail
sales have a key role
in achieving the
revenue growth
target – Ancillary and
retail revenue target
is 14.9 euros per pax
in 2018
Beating the market RASK in selected markets
© Finnair | September 2016 11
Leveraging competitive advantage in selected markets
Optimising O&D revenue
Launching new revenue streams
Maintaining margins through next generation Cargo
These strategic focus markets offer greatest competitive advantage Concentrating on 30 cities and their catchment areas globally
© Finnair | September 2016 12
Miami
Xi’an
Beijing
Shanghai
Singapore
New York
Bangkok Phuket
Chongqing
Chicago Tokyo Nagoya
Osaka Seoul
Delhi
Ho Chin Minh City
Hong Kong
Krabi
Fukuoka
Guangzhou
Toronto
Strategic JB Markets
Strategic Focus Markets
Strategic Home Markets
Competitive area
SJB
market
share:
21%
AJB
market
share:
25.8%
Atlantic Joint Business Siberian (Europe-Japan)
Joint Business
More revenue, higher productivity and better customer experience with digitalisation
Increase revenue
• Digital touch-points contributed approximately 24% of ticket
sales. Ticket sales through digital touch-points grew by
19% from the comparison period.
• Alipay testing ongoing on Shanghai flights
Improve productivity
• Mobile Applications for Technical Services
• A new production control system, analytics in flight
planning
Improve Customer Experience
• Wi-fi access throughout the wide-body fleet by May
• Mobile application had more than 114 000 active users*,
+85% year on year
• Customer Chat service had 70,000 contacts, +600% y-o-y
13 *In December 2016 vs. December 2015
Shift away from bulk to speciality cargo is the key margin driver - Improvements in cost efficient automation increase our share of higher yielding speciality products
© Finnair | September 2016 14
Special temperature areas to
support special cargo
products
Warehouse automation to improve
efficiency and quality
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Net investment commitments 532 M€ 2017-2019
M€
0
100
200
300
400
500
600
2017 2018 2019 2020 2021 2022 2023
A350 + spare engines Other commitments Planned InvestmentsNet investments (divestments) SLB Other Divestments
Strong financial position supports upcoming investments
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Net lease-adjusted debt / EBITDAR (30/09/16)
2.2
Median: 3,5x
0x
1x
2x
3x
4x
5x
6x
7x
8x
9x
Source: Company financials
LTM as of Sep 30, 2016 except EK (June 30, 2016), SK (July 30, 2016)
Rentals are aircraft rentals only; capitalized at 7x
Hybrids and preferreds treated as debt; cash excludes restricted cash
Interest does not include interest embedded in aircraft leases
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Solid foundation for growth in place Strategy period 2017-2019
Strong financial base
for growth
• Strong operating cash flow and cash funds
(Cash funds at 800 million euros Dec 2016)
• Solid balance sheet supports the coming
investments
Revenue growth
• Ticket revenue will beat market RASK
• Ancillary and retail revenue contribution to
continue to grow significantly
• New products and services
Growth lowers unit costs • Modern and efficient fleet
• Scale economics in fixed costs
• New recruitments reduce unit labour costs