Good day, ladies and gentlemen. I'm Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you all to this Finnair's second quarter 2024 earnings call. I have here with me our new CEO, Mr. Turkka Kuusisto, and he is joined by our CFO, Mr. Kristian Pullola, for the Q&A session. I will now turn this call over to you, Turkka. Please, go ahead.
Thank you, Erkka. Good afternoon, and a warm welcome to our second quarter's earnings call, also on my behalf. So my name is Turkka Kuusisto, as mentioned, and I'm the new CEO of Finnair. I've been in the company now soon for three months, and very happy to be here today to discuss with you when it comes to our second quarter results. The second quarter was yet another busy, and in many ways, good quarter for Finnair. The number of passengers increased by 5%, and we, in total, carried 3 million passengers in our flights during the second quarter.
But as the title of our report indicates that the airline industry and market environment is normalizing after a very strong period of demand, and therefore, we faced decreasing unit revenues that consequently led into a declining profitability versus the record quarter, second quarter of 2023. As we have communicated earlier, we have added capacity into our own network by calling back four of our narrow-body aircraft that were deployed to a so-called wet lease arrangements with British Airways, and that capacity was deployed to our own network in the end of first quarter.
Therefore, the available seat kilometers increased by 6% during this quarter, and in total by 8% if we also factor in the other wet lease arrangements that we have. What we didn't see during the quarter was that the revenue increase was not yet visible in the revenue, and therefore, the revenue increased by 2% in year-on-year comparison. And the vast majority of that growth came from our cargo business and from the successful implementation of our ancillary sales. But at the same time, we faced declining unit revenue and yields by 4% that then led into decreasing comparable EBIT, which landed at close to 44 million EUR versus the record quarter 66 a year ago.
Our load factors improved somewhat in Asia and Middle Eastern routes, and then on the North Atlantic traffic, where we recorded a PLF improvement of close to 7%. At the same time, we especially faced decreasing passenger load factors in our European and domestic traffic, into which we deployed the additional capacity in form of those narrow-body airplanes. The on-time performance was below our targeted level and the long-term traditional levels, and that was mainly explained by a runway renovation at our Helsinki hub, in which one of the runways were under maintenance and construction work from May until mid-summer.
Also, there were some challenging weather conditions, especially in the late, late April, when we had some snow, snow blizzards also in the Helsinki area, so therefore, the on-time performance was lower than expected. But all in all, the customer satisfaction moved to the right direction, and in terms of NPS, we improved to 39. During the quarter, the strategy implementation continued, and especially now when we see a bit of a changing market environment, our main priority will be in safeguarding our competitiveness and profitability through various continuous improvement actions. The long-term work in terms of improving customer experience continued, and we finalized a EUR 200 million investment scheme or project related to wide-body fleet cabin renewal during the quarter, and now all our wide-bodies are being refurbished.
Right after the closing of the period, we opened a new Schengen lounge at Helsinki Airport that adds a lounge capacity by 100 seats and also is much more modern and comfortable from the passenger journey point of view, and the early experiences and feedback related to both cabin renewal and also the new Schengen lounge are rather promising. In terms of strengthening the balance sheet, which has been one of the strategic priorities for the company, second quarter was yet another step to the right direction. Not only we got the first ever long-term credit rating, BB+ for the company, but with Kristian and his team, we were successfully issuing a unsecured senior bond of close to EUR 500 million.
Also with these proceedings, we were capable of repaying the pension premium loan in advance and in full. So that was basically the final instrument, financing instrument from the pandemic times, and now it has been done and dusted. Then when we take a bit more detailed view related to our second quarter PL, we see that the passenger revenues and travel services revenues were on par with the last year, even though the volume increased +5% and 2% respectively. That indicates that the yield environment is softening from the very high levels of 2023. Having said this, we are still facing an elevated level if we take a bit longer historical period into consideration.
We can be rather satisfied when it comes to our cargo business. The revenue was up by 9%, and the yield environment, especially from the Asian traffic related to cargo, remained strong and favorable throughout the quarter. And as already said, we can be satisfied with when it comes to our ancillary revenues that increased by 34% year-over-year. And one could conclude that the selections made in the commercial strategy are gradually paying off. In terms of cost control, operating expenses increased somewhat in line with the added capacity around 6%. We did have some additional cost related to the runway closure and also the weather conditions, and also the maintenance cost were EUR 10 million higher than in the comparison period last year.
The fuel price decreased somewhat in year-on-year comparison. Moving to the cash flow perspective, this is yet another highlight from the quarter. Even though the softening yield environment and other smaller issues that we faced during the quarter, the operative cash flow stayed very strong, EUR 173 million. That gives us confidence that we are doing the right things also in terms of cash flow generation. That then further also improves our balance sheet and as already mentioned, thanks to the successful senior bond launch, together with the operative cash flow, we were capable of buying back some of the older loans and also paying this pension premium loan fully in advance.
The cash position of the company is aligned with our long-term targets, close to EUR 1 billion in cash at the end of the quarter. In addition to that, we do have this revolving credit facility amounting to EUR 200 million also available. So one could conclude that the financing position of the company is relatively strong. That also influenced our gearing ratio. That then decreased by some 40% down to 150%, and that is also a continuation of the multi-year restoring of the profitability and the balance sheet healthiness. That then again makes it easier when it comes to looking into future and the implementation of the strategy.
Then some remarks after being a couple of months in the office and getting to know the company business and the industry. I guess that the utmost important topic for us is to continuously improve the competitiveness and profitability as the market normalizes. The Finnair team has made right choices, has done a fantastic job in terms of overcoming the crisis that we have seen over the last couple of years, made right decisions in terms of redeploying the fleet and accommodating to the changed route network and the closed Russian airspace. When moving on, we need to continue building our customer satisfaction around safety, reliability, and punctuality.
However, I also believe that there are a lot of opportunities when it comes to understanding our customers in greater detail through data and understanding their current needs and future needs, and develop our services and customer experience accordingly. Technology obviously offers some opportunities, and to those of you who have been reading the news this morning, there are also some risk associated with the technology. We can comment that in the Q&A section if needed, but Finnair is not using that technology stack in its own flight operations that has been today widely published or communicated globally. Then finally, personal experience plays a pivotal role in terms of achieving our long-term goals and targets. This then brings me to the final slide.
We are repeating our guidance that we've been discussing throughout the year, that the global air traffic is expected to continue growing in 2024. However, there are multiple risks associated with the demand and the cost environment in terms of inflation, prolonged high interest rate environment, and also the uncertainty related to various geopolitical and international conflicts remains as a uncertainty for the industry. We will reiterate the previous guidance related to capacity increase measured by available seat kilometers, including the wet lease arrangements, and we say that our capacity will increase by approximately 10% during 2024. Per our disclosure policy, we are today also giving the euro guidance related to our revenue and comparable EBIT.
And the range for the revenue, as of today, is EUR 3.0 billion-EUR 3.2 billion, and that again translates into a comparable EBIT range of EUR 110 million up to EUR 180 million in 2024. We will update this outlook and guidance in connection with the third quarter interim report that will be published in October. With this, I would be ending my short presentation and handing over back to Erkka. Thank you.
Thank you, Turkka. Now would be a convenient time for any questions you may have, so please follow the operator's instructions to present them.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jaakko Tyrväinen from SEB. Please go ahead.
Good afternoon, gentlemen. It's Jaakko here from SEB. Could start with the questions on the ticket liabilities, which were up 8% year-over-year. How much of this, so to say, relates to normalizing booking curve, and how much of this is kind of a growing demand for Q3?
Yeah, thanks. Thanks for the question. So I think we are seeing a normalization of the booking curve, as we speak, and then we are also seeing demand for the increased capacity that we've put in place. So I think the answer is a bit of both. And you know, let's see how this then pans out for the remainder of the year.
Okay, and could you comment anything on the kind of booking situation you're seeing right now on the balance between load factors and yields for Q3 or the second half? Are you seeing the growth coming in from volumes or should we expect some change in the yield trend we've seen over the past few quarters?
No, so I think, you know, we’ll of course see how things pan out. We have seen, as we say in the report, the normalization of the demand, and also a normalization of the capacity situation in the industry, which has then led to, you know, yields coming down from elevated levels. You know, what will happen from here onwards is partly gonna be a function of what is the underlying demand? You know, is the economic worries that consumers and corporates are dealing with gonna be easing or, you know, are we gonna go into a longer period of the type of uncertainty that we have now?
But, you know, having said that, I think you're on to the right topic, that the unflown ticket liability is up. It is showing that, you know, we've continued to sell on a healthy level. There is some normalization of, you know, how consumers behave from, you know, buying in advance. And then, you know, we'll have to work hard on, you know, the measures that are within our control, which is, you know, keeping up the competitiveness from a product point of view, and then focusing on driving costs down as much as possible.
Okay, very helpful. Thanks. If I may, I would still continue on the yield topic. If you think about the outcome of the yield for the quarter, was it kind of in line with your own expectations early in the quarter, or did it turn out to be a kind of a disappointment?
Maybe we can try. Maybe I'll answer, and then Turkka will answer, and we'll see if our expectations were the same. You know, clearly it's fair to say that when you live in a elevated yield environment, it's kind of difficult to expect that things would normalize. You always think that the current will continue, even if as we've discussed, you know, last quarter and maybe also kind of after the full year results in 2023, we were talking about the fact that the yield environment has been, you know, really good and strong, and so on.
But, you know, clearly, you know, it has come down, and we've responded to that by also ensuring that we make the right decisions when it comes to balancing our capacity and so on. So I don't think this is... It's nothing dramatic, and trend-wise, this is really what was expected after a period of, you know, elevated yields.
Yeah, I would very much echo that. And maybe for an industry newcomer, it's maybe easier to objectively analyze the previous year that was extremely high from the yield development point of view. So therefore, coming down by 4% in year-over-year comparison is nothing dramatic, as Kristian already mentioned. So it's all about normalization.
... Okay, good. Then turning to your capacity guidance, which usually remains at 10% for the full year. Could you remind us how large share of this is capacity that is leased out? How many percentage points?
So again, we are talking about maybe. So maybe I'll answer this way, that roughly half of the growth is coming from the new wet lease agreement that we have with Qantas. Then, of course, we are, as we've said in the report, taking earlier wet leased narrow body capacity into our own use. That's the other driver here. But clearly there is an element here where the new Qantas deal, which also was a deal which enabled us to take into use our full fleet of wide bodies, that is driving approximately half of the growth, and then the rest is coming from, you know, growing our own flying on the balance.
Good. That's, that's helpful. Thanks. Now the next one, I understand it's a bit of early days for the question, but perhaps looking a bit towards 2025, any, any comments on your, your capacity plans for that year? And, are you still planning to grow capacity going to 2025? And, and if so, would you need new aircraft capacity?
If I start, and then Kristian may complement. Obviously, when we see that there is some changes in the routes and the demand, the demands in those routes that we are flying, we are adjusting our capacity on continuous basis. And we've already communicated to our customers that we will be, for instance, canceling some European flights for the forthcoming winter season, Trondheim and Venice, to mention a few examples. And at the same time we are adding some capacity to our London route. So we are continuously monitoring the demand, and then doing minor adjustments and tactical-level decisions when it comes to optimizing the capacity for the current demand.
Maybe to the latter part of your question, so we are now growing our capacity by utilizing our existing fleet, you know, more efficiently. In the current market environment, I do not see that we would be growing capacity through investments. You know, we haven't been invested into this 10% growth, and in this environment, there are no investment plans on our end.
Thanks. Then, bit of a technical one on costs, especially on the maintenance cost line. Was there some surprising items during Q2? And should we expect kind of a similar increase on that row in the coming quarters as well?
So there was maybe a bit that, you know, Q2 last year was maybe a bit on the low side. Now, in this quarter, we had some pressure on maintenance, partly coming from the discount rate changes that have an impact on the maintenance reserve, and through that, on maintenance costs. We also had some engine-related maintenance, which was maybe one-off in nature, regarding some of the wide bodies which have had some engine incidents. So in that sense, we were a bit on the high side in the quarter. This is a cost line item which is volatile from quarter to quarter.
But I think trend-wise, there is some pressure still on maintenance cost because of the, you know, supply chain and availability of spare parts and so on. We are also trying to structurally kind of lower the maintenance cost by the actions that we have taken when it comes to particularly owning a larger portion of the aging fleet, which gives us, you know, flexibility from an operational point of view, and also kind of cost efficiencies from a maintenance point of view. But again, a bit volatility here, but no drama.
Okay, good, thanks. Then my final one, sorry to have so many. On today's news, on the global IT issues impacting also air traffic, do you have any first-hand information or estimate how this will impact your operations, and flights over the coming few days?
Yes, thanks. Great question and a very unfortunate situation. Finnair is not using that technology stack or platform in our own flight operations, so directly we are not utilizing that technology. But when we are flying towards destinations and airports with which this technology is in use, that obviously then influences our flights as well. So we are continuously monitoring the situation, and then potentially delaying some flights, and then in the worst case, terminating some flights. Luckily, our partner in Helsinki base, Helsinki Airport, is not either using this technology, so we are on the safe side in Helsinki side. But obviously, when you have tens of destinations, it remains to be seen what the final effect is?
... Okay, good. Thanks. That's all from my side. I'll leave the floor to other questions.
The next question comes from Matteo Salcedo from Oddo BHF. Please go ahead.
Yes, thanks for taking my questions. Maybe coming back on the yield, could you maybe give us how do they compare right now against 2019 levels? And, we have seen also some of your peers saying that yields, especially to Asia, are quite weak. Could you maybe give us a breakdown on how yields are behaving from one region to another, please?
Yeah, I think clearly. So yields are still on a higher level than they were in 2019, but so are costs, and so are, you know, fuel prices. Kind of inflation has been back in the system since 2019, and because of that, I think 2019 is less of a relevant benchmark, you know, as we go. Having said that, we do wanna highlight that last year was now with the benefit of hindsight, kind of really a strong year, you know, from a performance and yield point of view.
Then when it comes to kind of regional performance on yield, yields, for us, you know, North America and the Atlantic business has been, you know, strong relative to the past and expectations. And maybe Asia and Europe has been, you know, a bit more on the weaker side. And I think that's true, you know, from an underlying demand point of view, and it has impact both on volumes as well as on yields.
Perfect. Thanks. And then maybe just last question on your EBIT guidance. I know there is a, it's a huge range that you have given. Is it maybe because you're waiting something to happen, or in the fourth quarter, like, there is a lot of uncertainty over the winter period, or is it more mostly regarding the summer period expectations? I'm just trying to get a color on why it's such a range.
No, so first of all, there are of course multiple things that can have an impact on the EBIT. Both, you know, volume yield as well as then fuel price, even if we are hedging, you know, fuel costs to a high degree. So in a way, the large range is a function of what if all of these factors point in the wrong direction? So one shouldn't think about it that the range is an expected value. It's like, you know, worst and best case if everything goes, you know, with or against us. And in that sense, I think the information value is in the midpoint of the guidance that we have provided.
I don't think there is any exceptional uncertainty here that we are trying to signal with the broad range. You know, we are in an industry which is volatile from time to time. We have some, you know, uncertainties on top of that, and then we are also being prudent when it comes to, you know, setting the range so that it would include, you know, almost all possibilities that we see.
That's very clear. Thanks a lot.
The next question comes from Joonas Ilvonen from Evli. Please go ahead.
Hi, it's Joonas from Evli. Just following up on the unit of question. As you said, North America routes have been quite hot this summer, and I think that's the case for many other airlines as well. So, what various routes in Europe have been relatively soft? So, do you think that rather a large difference that we now saw in these Q2 figures, do you think that will like kind of harmonize towards the end towards the end of this year? Is it like a kind of... Can you maybe talk about the factors behind that it may be prevented by American tourists arriving to Europe and Europeans staying more at home? Can you talk about that dynamic a bit?
Thank you for the question. So, we see rather strong demand on all of our North Atlantic or North America routes for the time being, and most likely that is to continue. And then if we take the other reference point versus Europe, there we need to keep in mind that we especially allocated this new capacity or increased capacity to our domestic and European routes, leading to lower load factors. So, obviously difficult to predict for the future, but we anticipate that the North Atlantic traffic remains strong during the third quarter.
All right. So the pricing differences, ticket prices are not that different when you're taking into account the load differences in load factors?
... and of course, you know, the underlying dynamics here is, of course, that the North Atlantic business is a very competitive one. But as you said, everybody is doing, you know, fairly well in that market. So it must mean that the dynamic U.S. economy is having an impact on travel both to and from the U.S. And unfortunately, we can't say the same about the dynamic of the European economy, and that is kind of visible here.
All right, thanks. And maybe another question. Can you comment on, I mean, ancillary revenues were, I would say, extraordinarily strong this time, despite somewhat softness in unit yield, so, can you and load factors, so can you give any color on that one?
So that is a continuous effort when it comes to pushing for additional ancillary sales, and that has developed rather positively throughout the first half of 2024. In June, in May, we did see additional sales coming from buying of Finnair Plus or Avios points, so that was a seasonality towards the end of the reporting period.
But I think, as Turkka says, that it is fair to say that this is, of course, a thing that we worked hard on for a longer period of time. We've kind of made the growth possible by structuring our products in a way where customers have a choice when it comes to, you know, what they want to have included on their travels. And now we are, you know, systematically training the organization to sell the offering. And it is, you know, good to see that these, you know, this underlying work and the training is actually starting to show results.
Okay, thanks. That's all from me.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers.
As there are no further questions, we shall conclude the session. So many thanks for the excellent questions and joining the call. We wish you a great day.
Thank you.
Thank you.