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 first quarter 2025 earnings call. I have here with me Finnair's CEO, Mr. Turkka Kuusisto, and he's 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, and also very good afternoon from my behalf. We had a weak start for the fiscal year of 2025, and in many ways it was expected when it comes to the increased cost profile we anticipated when we opened the fiscal year and also when we communicated the full year result in mid-February. The expected increase in cost of environmental compliance by some EUR 10 million, combined with the increasing traffic and landing charges, hit especially the seasonally weak first quarter of the year. On top of that, we did face a EUR 22 million hit from the industrial action of the pilot union. That is a combination of multiple factors: EU compensations, reroutings, hotel accommodation, and other costs related to disruptions and lost revenue.
All in all, that on top of the so-called operational result, the comparable operating result was below EUR 60 million. Despite the weak result, the operating cash flow was relatively strong. That indicates that the booking of tickets and the accumulation of the sales towards the most important season, being the summer season, is developing favorably. Our unflown ticket liability was some EUR 150 million higher than it was at the end of the year. Also, if you compare that to the closing of Q1 in 2024, we see also some of a EUR 150 million positive delta. The number of passengers increased by some 2.6%, while the ASK increased by 2.3%, and that again was influenced by the industrial actions and the canceled flights. We did see a ticket fare decline by some 4.6%.
The biggest deviation was in our Middle East traffic, where we did see a double-digit decrease. Having said this, the other geographies performed pretty much par with the last year. The load factor increased by 1.6%, and the improvement was seen in Asia, North Atlantic, and the Middle East. If we take a bit more detailed view to different geographies, starting from Asia, in which we see a 2% decline in ASK, mainly explained by the industrial action and disruptions, but at the same time, the revenue and amount of passengers increased, so that then resulted in very positive development in the load factors. In Europe and in domestic traffic, the load factors decreased because the vast majority of the capacity that was released from the British Airways were allocated to traffic in Europe and the domestic market. North Atlantic continued to perform relatively strongly.
ASK increased by 16%, and the RPK closed to 20%, and also the load factors developed positively. Again, our investments when it comes to increasing the weekly frequencies to Dallas, for instance, are paying off. If we take a bit more detailed view related to the P&L, as already mentioned, the revenue increased by some 2%. If you break that into more detailed components, we again saw close to 20% increase in our ancillary sales, which is concrete evidence of our commercial strategy working and also gives us confidence that we are on the right path. The cargo business grew by some 8%, and especially again, the yields and yield environment from Asia to Europe and from Asia to USA did develop positively.
The other operating income line declined by some 8%, and that is a result of those already mentioned wet lease aircraft being returned to our own flying network, and also, again referring back to those industrial actions, we needed to cancel some of the Qantas flights during the quarter. All in all, the operating expenses increased by some 8.4% and already mentioned those three biggest levers being industrial actions, EUR 22 million, and then price escalations in different buckets. This slide or bridge aims at illustrating the delta versus the first quarter of 2024 when we delivered minus EUR 12 million in comparable operating result.
On top of that, as already mentioned, additional EUR 10 million from the increased traffic charges and EUR 10 million from the sustainable aviation fuel and ETS cost, and then basket or bucket of other costs mainly related to maintenance and of course some contribution from Easter because it was last year in March, but this year it was during the second quarter. We are operationally down to minus EUR 41 million, which is pretty much according to the expectations that we had when we went into this fiscal year. On top of that, EUR 22 million in terms of industrial action and then the full final result in terms of comparable operating result is minus EUR 63 million.
Speaking of those industrial actions and the CLA processes, we've been capable of closing a few tables related to upper officials and the office workers, but at the same time, the main tables, if you like, in terms of operations and the flight operations, mainly being the pilots, cabin crew, and ground workers are still open. Friday last week, the employer union, Palta, service sector employers in Finland, submitted a proposal for the Finnish Airline Pilots Association, which is now a fourth resolution proposal for the CLA process, and we are expecting the response by 3:00 P.M. tomorrow afternoon. It goes without saying that we genuinely hope that there would be now realism and also a constructive mindset when it comes to finding a resolution so that we could move on and leave this industrial action behind us because, already mentioned, substantial cost component.
Additionally, 190,000 customers have been influenced, and that of course influences our NPS and reputation if this situation will continue. In terms of the balance sheet, key KPIs, because of the negative result, equity ratio declined somewhat, but then at the same time the net debt has decreased, so gearing actually went down even though the profitability was below our expectations, including the industrial actions. From the cash flow point of view, we are closing the quarter with a healthy cash balance north of EUR 900 million, which is very much aligned with our one-third objective of the total annual revenue, and that is thanks to changes in working capital, which then translates into positively developed booking curves and demand, what we have seen, and the continued tight investment discipline and cost consciousness resulted in positive development.
The loan and lease repayments were mainly related to one JOLCO agreement and then ECA loans related to our aircraft. A few words around the strategy implementation and day-to-day activities. Even though the disruptions are challenging us on a daily basis, some 10-20 flights being canceled. Having said this, we are flying and operating close to 300 flights undisrupted, and at the same time for us, it is extremely important to push for the development agenda of the company and the organization. As already previously mentioned, we are making improvements, especially to the service portfolio of our core customers, i.e., those who fly with us the most, and a lot of improvements related to customer service, lounge access, etc., etc. have been implemented during the quarter. We also continued the preparations of the partial renewal of our narrowbody fleet.
As previously communicated, this year we have started a project to review what are the options when it comes to replacing the oldest aircraft in our fleet, mainly related to A330s, five of them, and also evaluating what's the roadmap towards the 320s, and we will communicate more about the concrete steps when we have news to be told. The number of users in Finnair mobile application continues increasing steadily, and we will push for additional investments and development when it comes to the digital experience of our services and travel journeys. I still want to highlight that the Net Promoter Score remained at a good level and was 34, even though we faced these disruptions and cancellations because of the industrial action.
As previously communicated, the current strategy period will end at the end of this year, and the company and management is currently working with the updated strategy, and we will communicate about it during 2025. As you can already see and maybe hear, there will be more emphasis, and the heart of the strategy will be built around understanding the needs and customers who fly us the most. Outlook and guidance. We are today repeating the guidance we gave in conjunction with the full year disclosure in mid-February. Excluding the impact of the industrial action, Finnair has planned to increase its total capacity in terms of ASK by some 10% in 2025. The revenue range provided earlier is repeated today, being EUR 3.3 billion to EUR 3.4 billion. That translates into a comparable operating result range of EUR 100 million to EUR 200 million.
Additionally, we are today providing you with more information of the impacts of the industrial action, already actualized and/or already known. Actualized revenue loss during the first quarter was EUR 31 million and EUR 22 million in terms of comparable operating result. In April, the current run rate is such that the negative impact to the revenue is some minus EUR 15 million and minus EUR 10 million in comparable operating result. On top of this, we will see negative comparable operating result impact of EUR 10 million because of the cancellations we needed to do for our summer schedule. 230 flights are not being flown because of the industrial action, and that's yet another EUR 10 million. Then, based on all this information and cancellations, our estimated impact to the ASK or capacity is five percentage points.
We will, of course, update the outlook and guidance in connection with the half year report in mid-July. Erkka, with these words, I guess we are ready for the Q&A session.
Yes, indeed. Thank you, Turkka. Now would be a convenient time for any questions you may have. 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.
Yes, good afternoon. It's Jaakko from SEB. First of all, I would like to touch a bit on a topic which I understand is a bit difficult to answer at this point, but what is kind of your readiness to react on possible peace in Ukraine and the possible following removal of the Russian overflight plan? You must have analyzed the scenario, and what I'm asking is that, for example, do you think that it would be easy to find new slots from Asian destinations, and basically how long it would take for you to take your Asian strategy back to the level where it was pre-pandemic?
There are obviously multiple steps if there was a ceasefire or more permanent peace in Ukraine. First and foremost, the overflight rights should be restored, which are bilateral agreements between the countries. If that positive development would happen, the immediate benefit for us would be to have that we would be back in 24-hour rotations when it comes to our widebody flying to Asia. That would release capacity, decrease cost, and also provide us with opportunities to redeploy the planes to some other routes. It is a second or third phase discussion how we could reopen some of the routes that we previously had, and then to really understand how the market dynamics in China, for instance, have developed since the pandemic and closure of the Russian airspace. It is a multi-step process, but the immediate benefit would be the 24-hour rotations to our Asian flying.
Excellent. Thank you. Given what is happening now between the U.S. and Europe, have you seen any indication of lowering demand towards the continent or the U.S. specifically?
In many ways, too early to tell, but in the big scheme of things, we have not identified big changes in the booking patterns or demands. There have been shorter, softer periods when consumers have followed geopolitical development and various incidents, if you like, but if you take a bit broader and longer-term trend, we do not currently see big changes in the consumer behavior.
Okay, thank you. On the recent decline in the fuel oil and fuel prices, have you seen the competition already reacting on this, and are you seeing, for example, summer pricing coming down in your peers and competitors, and how do you expect yourself to react on the recent decline?
I think that would go in the same category, kind of too early to tell yet. No trend seen at the moment. As we say in our outlook, clearly the tariff gate has increased the risk level in the economy overall, and thus in any industry that deals with both consumers and corporates. Maybe to add to what Turkka said, during the last month, there has been Easter and other events also that make comparison to last year more difficult than normal, and because of that, it is really too early to draw any conclusions on demand or competitor behavior or any other things. The only thing we see is that, yes, fuel price and currency has moved in a favorable way, and in a way, it kind of gives us some cushion for any impacts that could come from the current situation.
Okay, good. Very helpful. Thank you. Finally, a bit more technical one. The rise in traffic charges, this obviously was not a surprise to you, but perhaps to at least me at least, but does this kind of inflation come evenly across the operating routes, and is this something we need to also take into account and assume going forward?
Yeah, this is clearly an increase in cost that is permanent for the time being, and it comes from the fact that there are now less users of North European airspaces, and our relative share of the usage has gone up, which means that we need to proportionately carry a bigger portion of those kind of total costs that are generated by the providers of those services that typically kind of price their service on a kind of cost-plus basis among the users. That is why, in a way, this is the situation now. Only a market dynamic change, i.e., Russian airspace being open again and there being more usage of the Northern European airspace by others, would then result in the cost pressure going away.
In that sense, I think this is something that we'll have to live with now, and in a way, we now have more time to react to it as we go into the seasonally stronger quarters of this year.
Okay, thank you. Very interesting. Just to remind, what is so that most of the traffic charges are priced in USD?
Out of these traffic charges, the majority is still kind of euro-based. I think the USD traffic charges that you referred to must be that during the times when we paid for the Russian overflight, that was most likely done in dollars, and proportionately, those costs were much higher than any other ones. That would be my understanding of the situation.
Right. Thank you. That's all from me. Thank you.
Thank you.
The next question comes from Joonas Ilvonen from Evli. Please go ahead.
Hi, it's Joonas from Evli. You already answered my question on the North Atlantic routes demand outlook, but is it true that you're still not seeing any significant weakening in demand outlook for other route areas either due to the trade war?
Again, I think as we've said a couple of times now, it is really too early to tell and draw conclusions. The trade war has been ongoing now for 27 days. It's been ebb and flow during that period of time, and during some period of this time, we've also had kind of Easter and other lower demand seasons taking place. That is why there is really no pattern to draw here in terms of what are the implications here. We, of course, continue to monitor the situation, try to understand our own data as well as then the data of our partners, and based on that, we are not seeing anything dramatical here. Having said that, as we said in our guidance, clearly as a result of this, the risk level has gone up, and that is, of course, something that we will need to take into account.
All right. That is clear enough. I have also a question on the sustainable fuel cost. I mean, your fuel cost line item was basically as I expected, no surprises there. Was this EUR 10 million additional cost due to sustainable fuels? Is it fully reflected in the fuel cost line item and not in some other cost line items? Because I saw some surprises along the other cost items, but not in the fuel cost.
I think the majority of that cost comes through the fuel line item, both the cost of having to blend 2% of SAF on European flying as well as the changes in the dynamic, how the ETS system works, and the prices of those. Again, against the increase that comes from sustainability-related items, we also saw some decline in the underlying fuel price also taking into account the hedging, as you can see. I think it's on slide 17 in our prepared presentation.
Okay. You already talked about these traffic charges, and there were some other cost line items that were also a bit up 10% year, I think. Any general comments on those?
No, again, I think there is, of course, some inflation in the system, but there's no drama there. We did grow despite the headwinds that came from industrial actions. We did grow our capacity, and that comes with then growing costs. Some of the volatile cost items, such as maintenance, there was maybe more pressure on the upside than downside. Some of the maintenance reserves are being calculated by discounting cash flows, and as interest rates come down, you kind of have an increase in liability that then creates some cost pressure. That was also kind of bringing a bit of headwind, but no drama. The biggest items that created headwind, as Turkka said, was really these navigation charges, the sustainability cost, as well as the cost that came from the industrial actions.
Okay, thanks. That's all from me.
Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Victoria Moores from Air Transport World, ATW. Please go ahead.
Hi there, good morning from England, and thank you for the insights so far this morning. I wondered if I could just pick up on one thing, which is you mentioned about the narrowbody renewal, and I was wondering whether within the context of the industrial action, whether or not those two things could have an impact on one another, so whether the industrial action could potentially push back that renewal decision or that renewal strategy, and whether or not it could impact how you would handle narrowbody capacity overall. Thank you.
They are not interrelated, so we are moving forward with this project when it comes to planning the partial narrowbody renewal, and there is no connection between the CLA process and the investment scheme.
Okay, thank you.
Apparently, there are no more questions, and thus we can conclude the call. Many thanks for the excellent questions and joining. We wish you a nice day.
Thank you. Have a great afternoon.