Good day, ladies and gentlemen. I'm Erkka Salonen from Finnair IR, and it's my pleasure to welcome you all to this Finnair third quarter 2020 earnings call. I have here with me Finnair's CEO, Mr. Topi Manner, and he is joined by the CFO, Mr. Mika Stirkkinen, for the Q&A session. I will now turn this call over to you, Topi. Please.
Okay. Thank you, Erkka, hello everybody also on my behalf. Welcome to this Q3 earnings call. Thank you for putting the time aside. When we look at the Q3 of Finnair, it is clear that the pandemic continued to weigh heavily on us. At the same time, it is important to acknowledge that we proceeded well in terms of our savings targets, we are now in a position to exceed or increase our saving target. We also progressed well in terms of strengthening our cash position and our equity. All in all, we have significant headwinds in terms of the surrounding environment, all of those things that we cannot control. On the other hand, those things that we can control are progressing well and that two-sidedness is visible in the quarter.
Moving forward, when we look at the Q3, our run rate of daily passengers during Q3 was approximately 10% vis-a-vis the 2019 levels. The travel restrictions continued to limit our possibilities to operate in a significant fashion because Finland, as our domestic market, has one of the most stringent, if not the most stringent, travel restriction regimes in Europe. The demand that we experienced in the cargo side of business was still on good level and the proportion of cargo out of our total turnover is clearly bigger than in normal times. Also, some time ago, we released our winter traffic program, and according to that, during the winter time, we will be flying to some 50 destinations, on average flying 75 daily flights.
That corresponds approximately 20% of the flights that we flew in 2019, and translates into a little bit less than 15% of our capacity measured with available seat kilometers. What is important to note is that we maintain readiness to increase the amount of flying as soon as the demand recovers, if, for example, the travel restrictions are being lifted. That is indeed something that we would hope to see in the near future. Our guidance for the Q3 was that we will see a similar operating loss of similar magnitude than we saw in Q2, and that is indeed how it turned out to be. Our operating loss landed at -EUR 167 million, so approximately EUR 1.8 million, EUR 1.9 million per day. Our revenue fell with 89%, so the run rate of revenues is 11%, as I mentioned earlier.
Our capacity decreased with 87%, pretty much hand-in-hand with the revenue. During the quarter, we decreased our costs significantly with immediate measures to adapt to the new environment. We took out approximately EUR 500 million of costs also during the Q3, as we did during Q2, and with that, during the course of the pandemic, we have been reducing our costs with more than EUR 1 billion. The bright spot of the quarter was the increase of net promoter score to all-time high levels. Our net promoter score during the quarter was 56, and the sample size is similar to the sample size that we had in Q2 last year and Q3 last year when our net promoter score hovered between 38 and 40.
We see this clearly as a vote of confidence from our customers in terms of how we are handling the health safety measures on board our aircraft. Customers clearly think, and more importantly, feel that they can fly safely also in terms of the virus concerns. This is certainly something that we will hope will bring customers back rather sooner than later once the virus situation clears out. In terms of customer service, another big theme during the quarter was the refund processing. Starting from March, when we were forced to cancel flights on the back of the border closures, we have now handled refunds of approximately 1 million customers. We have been adding resources to refund processing. We have been developing new tools like robots to handle some of the refunds automatically, and now we are back to normal handling times in terms of refunds.
Altogether, we have been paying more than EUR 400 million of cash refunds to our customers. As stated, we made good progress in terms of our cost savings and permanent cost savings, and therefore, we are in a position to increase our target from EUR 100 million- EUR 140 million with full run rate impact in year 2022. It's clear that when we are now reviewing our organization and our operational processes, changing our way of working, this is yielding to structural cost savings across Finnair and especially on the land side of our operations. We have made better than anticipated progress and identified new opportunities for savings in areas like maintenance and repair, real estate, IT cost, and then we have been renegotiating and doing some competitive biddings generally with our suppliers, and this is clearly yielding results.
Given these steps forward, we now increase the target to EUR 140 million. In terms of personnel implications, during the quarter, we handled the so-called co-determination process leading to reduction of people of 700 across our operating countries. This corresponds to approximately 30% reduction in our land side operations, especially in the headquarters and support functions. Altogether, when we take retirement into account, when we take the natural churn into account, and after these redundancies during this year, we have been reducing the amount of our personnel with 1,100 approximately.
At the same time, we have been in intense talks with our unions in terms of agreeing upon savings. We have been agreeing upon permanent cost savings with some of our employee groups, with some of our unions, and those unions, those employee groups will be eligible for a rebuild incentive that will be paying out in three years if our rebuild targets will materialize. Some of the unions, some of the employee groups have agreed on fixed-term savings. Those are certainly also very welcome in terms of our rebuild planning and savings targets to be met. Finnair has a pension fund predominantly for flying personnel, for pilots and cabin crew, especially for more senior staff. As part of the talks with the unions, we have now agreed about index removal for those pensions, for those additional pensions.
That will be leading to a reduced pension liability for Finnair. On the back of that, during Q4, we will be making a one-off positive booking that amounts to EUR 85 million. That EUR 85 million will not be part of our comparable EBIT, but it will be contributing to the EBIT number in the items affecting comparability. Therefore, it will be flowing through the P&L, and ultimately, it will be strengthening the equity in our balance sheet. Beyond this EUR 85 million, we have potential other similar measures that will materialize during Q4. We have a negotiation result with our unions, but some of these arrangements are pending regulatory approval. Once we get those regulatory approvals, we will get back to this and announce the result during the course of Q4.
As part of the job redundancies, we introduced a next program for our people that is aiming to support those who will lose their jobs in finding their next chapter in their professional careers. This is something that we feel is very important to us in terms of us being a responsible employer and offering social support for those who are in need. In terms of cash, we started the quarter with a cash balance of EUR 851 million. The comparable EBITDA was EUR 82 million. The change in working capital was quite significant during the quarter because we especially handled the backlog of refunds that amounted to EUR 129 million. There was additional working capital elements, especially coming from various hedge and derivative impacts during the quarter.
Going forward, it should be noted that the working capital changes should be clearly smaller, especially when we look at the refunds, because the outstanding refund backlog currently is EUR 40 million and therefore, this particular item will be clearly different in the quarters to come. We took delivery of one Airbus A350 based on earlier arrangements prior to the pandemic and therefore invested the remainder of the purchase price to that aircraft. We did one divestment of sale and leaseback arrangement of one Airbus A350 aircraft. The remainder of the rights issue came in in July. Hybrid bond net proceeds impact the cash, and we also drew EUR 200 million out of our pension premium loan during the quarter. We paid back the revolving credit facility of EUR 175 million, but the revolving credit facility remains at our disposal at this time.
That basically led to the quarter-end cash balance of EUR 725 million. I stated the revolving credit facility and EUR 200 million of pension premium loan remain undrawn in terms of liquidity at this point of time. We continue to negotiate financing arrangements, especially aircraft transactions and thereby raising debt. Once those discussions mature, we will be coming back to that with separate announcements. When we look at our balance sheet, the equity ratio is on year-end 2019 levels, thanks to the rights issue that we conducted during the summer. Now looking into Q4, one of bookings out of the pension fund will be supportive for our equity as well. Gearing levels remain at Q1 levels at this point of time.
All in all, when we look at our balance sheet, the balance sheet is healthy, and it provides a solid platform for us to rebuild Finnair during the quarters to come when the pandemic develops and hopefully gradually starts to ease. In terms of fuel cost, the price development was basically compensated by currency and hedging deviations. Our fuel bill basically pretty much developed hand in hand with our volume. In the IFRS accounting, we still were in an over-hedged position during the quarter, and we dismantled, unwound those over-hedges and that resulted into net financial expenses of EUR 54 million during the quarter. Our level of hedging is relatively small going forward, and therefore, these net financial effects are expected to be limited in Q4 and beyond. When we look forward, the winter traffic program I already covered.
We estimate that the ramp-up in terms of the demand starting to pick up will materialize in bigger scale at the start of the summer season. Basically end of March, April next spring. We will be making further decisions related to the summer traffic program in early next year. At this point of time, we are flying some of our aircraft, approximately half of our fleet, to winter storage in warmer countries. One of those is Czech Republic and Prague, where we are also doing some maintenance for our aircraft. We maintain adequate fleet in our home base so that if the demand is picking up, we can react to that quickly and increase the amount of our flights.
During the quarter, we have been working on our revenue program as well. In an effort to find all revenue pockets that can be found in this challenging marketplace where we find ourselves in. Suntours Aurinkomatkat launched package travel options, not to Mediterranean countries where they are flying typically, but to Finnish Lapland where the sun also shines during the winter time. Those travel options have been received well by our customers. Another pilot that we have been doing is a Taste of Finnair. We are selling premium packaged food inspired by our business class to local supermarkets. This has been received really well. We are looking at possibilities to scale up this fast. When we announced the initiative some time ago, the news went viral. Actually, the news was covered in more than 60 countries across the globe.
This is an example of how we are staying relevant in the minds of our customers, and how we are keeping up the brand value of Finnair, which indeed is a great asset for us during this time. We have been also doing travel responsible campaigning, reminding our customers that we are ready to fly when they are ready to fly. There is also an important message to governments across Europe in this one, and that message is a message of travel restrictions. What the travel industry needs is consistent and predictable travel guidance, and especially common standards, common testing regimes based on rapid testing. We do hope that across Europe, governments will be harmonizing their practices and take steps forward in this very important matter in order to save jobs in the travel industry in Europe during the winter.
That brings me to the guidance of the quarter. Looking ahead, we see the Q4 operating loss to be of similar magnitude than we had during Q2 and Q3. This one-off booking out of the pension funds is not included in comparable operating profit as such, and as stated that EUR 85 million and potentially some more will flow in to the P&L as part of the operating result, and thereby will be strengthening the balance sheet and equity. Based on our current assumptions, we estimate that the revenue and the capacity will both decrease more than 70% in 2020 compared to 2019. This pretty much sums up the Q3 from Finnair perspective.
As stated what we have been able to accomplish during the quarter is especially the progress in the permanent savings in adapting our business to new reality, and also the measures in terms of cash and equity have been high on our agenda. Progress on those fronts has been according to our plans. Thank you.
Thank you, Topi. Now would be a convenient time for any potential questions you may have. Please go ahead.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. That's zero one. Our first question is from Pasi Väisänen of Nordea. Go ahead, your line is open.
Great, thanks. This is Pasi Väisänen, Nordea Markets. Well, we can start with this kind of cash position. I would like to know what is your current run rate for the cash burn, and what's your kind of hurdle rate or the base cash position you actually need to run your ordinary operations? Well secondly, in looking at the kind of these reductions, you actually laid off some 700 people if I read right from the ground personnel. Is there now a kind of a mismatch between the flying personnel and the ground personnel? Are we going to see, are you going to call back the people in the first quarter, or are we going to see the next round in the layoffs regarding flying personnel in the first quarter on next year?
If we start with these two ones, I have a follow-up also coming on this. Thanks.
If you, Mika, take the first one, I can take the second one.
Operating cash flow. We guided that the comparable EBIT is at Q2, Q3 levels, and hence EBITDA will be around EUR 80 million-EUR 90 million per quarter. On top of that, we guided that the estimated refunds are EUR 40 million during Q4, and then after that, we anticipate that there wouldn't be any refunds in Q1, Q2. On top of those two items, we will have on operating cash flow, financial expenses paid net line, and over there we have the interest expense and hedging costs. You can do the math over there. On top of those, we have the debt repayments and costs of investment cash flows. That answers hopefully your question on the cash flow.
Yes. In terms of the second question about the mismatch of redundancies, there is no mismatch, and we do not have any further plans for people reductions either. When we look at the headquarter and support functions, we are changing the processes, we are changing the way of working, and there's a true productivity gain out of the structural changes in those units. When we look at the flying crews, what we will need to remember is that the furlough legislation in Finland is very flexible. Meaning that we can do furloughs until further notice. When we do furloughs until further notice, we get rid of the entire salary cost of those employees. In flying crews, we will utilize those furloughs until further notice, and some of these furloughs will be relatively long. They might be two years or even three years at times.
By doing the redundancies the way we have done, we aim to safeguard the possibility for us to increase the amount of flying relatively fast post-pandemic while improving the efficiency in the support functions significantly. This is part of our rebuild plan. This is part of our plan to come out strong from the pandemic.
Great. Thanks. I hear you. Just if I may continue with this kind of the cash issue and investment. Well, what you are going to do for this kind of multibillion narrow body investment program, which actually is supposed to start in couple of years of period? Is it going to be postponed or kind of canceled, or are you going to run it in any case? When looking at the investments, this year you have had a quite high investment figure. Are you able to reduce the investments in next year compared to this year? Lastly, regarding the recovery kind of period, you were speaking about the two to three years period when the kind of air traveling would be kind of close to the more normal levels or at least into year 2019 levels.
Some carriers in Europe have actually highlighted a three to four years recovery period. I would like to know where these Finnair estimates are coming from and to what they are based at. Thanks.
Yeah, I mean, if we start from the investments, comparing the investments this year and next year, based on our order book, we have still three Airbus A350s coming up, and they constitute the bulk of our future investments during the upcoming two years. Now we have been in intense talks with Airbus about the deferral of these three Airbus A350s, and we are at finalizing stages of those discussions. Based on the current status, we see it possible to defer these A350s so that the investment number, the CapEx number would come down for next couple of years. Once these discussions mature, we will come back with further information and more specific information. In terms of the narrow body investment, that is not actual at this point of time. We are postponing it, but we are keeping it on our agenda.
Eventually, once the pandemic clears out, then we see a need for narrow body renewal. Therefore, we will take up that investment possibility at that point of time. For the time being, we don't have usage for those aircraft that we have in our fleet. Therefore, any CapEx to new aircraft at this point of time is not advisable. When it comes to the third part of your question about the recovery time of aviation, we are estimating that aviation will be coming back to 2019 levels in three years. That is our base case estimate. We see that some airlines are saying the same. Some are talking about three to four years. If we look at our situation and our plans, it does not really matter whether we are saying whether the recovery will take in three years or four years.
All the actions that we are doing will need to be done in any case. That is something that should be noted in connection to this particular issue.
Great. Lastly, if I may, for Mika Stirkkinen still ask about the cash position. What is the ordinary base cash you need to run the operations? Is it EUR 400 million, EUR 450 million, or EUR 350 million?
This is an interesting question that what do you actually mean by that? That on a monthly basis, we might need approximately EUR 100 million. The valuation during the month might be something like that. The question is that what do you mean by that? Typically, you have cash in and cash out. Within a month, as I said, it's EUR 100 million is the difference between max and min. Let's say that it feels comfortable if we have cash balance in excess of EUR 400 million, let's say.
Yeah. I was looking at the 10, 15 years average, and it actually is pretty close to EUR 350 million, EUR 450 million last 10, 15 years average.
Yeah, I can reveal the inner feelings of myself and Topi. We like more cash is better.
Surprisingly.
Okay. I hear you. Yeah.
Yeah.
Thanks. That's all from my side. Yeah.
Thank you, Pasi.
Our next question is from Joonas Häyhä from OP Financial Group. Please go ahead. Your line is open.
Yes. Hi, it's Joonas Häyhä from OP. Firstly, could you update us on the sale and leaseback market? Is the market still functioning in a relatively normal fashion, or has it changed in any way recently?
It was almost completely frozen, let's say, in May. It started to open up again. The market is still there, although naturally it's not as deep as, let's say, in 2019. We are in the progress of finalizing one sale and leaseback transaction, and we are in final stages of another aircraft financing transactions. Hopefully, we are able to come out with a stock exchange release on those two transactions rather soon.
Okay, thanks. Another one on CapEx. You talked about this already a little, but could you elaborate perhaps what is kind of the minimum level? How low could CapEx go if needed with this level of flying? I guess the maintenance and other items similar to that are not needed in the same fashion than normally.
It's less than EUR 100 million. It's a function of the operations. We need to have some overhaul, especially engine overhauls. If we anticipate more flying, the maintenance investment will be a bit bigger. In any case, that's below EUR 100 million. Let's say between EUR 50 million and EUR 80 million would be the ballpark. We are working very heavily to postpone A350 investment cash flows as well as other investment cash flows related to fleet. All the other than maintenance investments are pushed back a lot as much as possible.
Okay, thanks. That's all I have at the moment.
Once more, our target is to come out with both Airbus transaction news, then news on the A350 aircraft financing 2x , and then potentially even also other fleet-related investment news. Those are not mature enough to be announced. All of these actions would support our cash flow.
Our next question is from Jaakko Tyrväinen . Please go ahead. Your line is open.
Yes, good afternoon. Jaakko here from SEB Regarding the recovery and the possible advanced testing methods for COVID, meaning the rapid testing, do you see that the travel restrictions could be lifted if we could deploy this testing across Europe, for example? How do you see this kind of testing, or common methods across Europe, would impact your demand?
Yeah. This is a million-dollar question, or more than a million-dollar question, perhaps a billion-dollar question in aviation in Europe right now. If we start from the E.U., one of the basic principles and pillars of E.U. is the free movement of people. Therefore, what E.U. countries need to do relatively soon now is to find new practices, because the border controls on E.U. internal borders will cease to exist relatively soon. The so-called Schengen exemption that for many countries was taken into use in March at the start of the pandemic, expires relatively soon. In the case of Finland, that expiry will take place on the 23rd of November. Therefore, the Finnish government, for one, is in a hurry to come up with new legislation related to testing and related to travel restrictions. This basically goes across countries in Europe.
Our view is, and this is in line with IATA and this is in line with Airlines for Europe, is that rapid testing, especially prior to departure, is the means to implement across Europe a common testing regime. Once that testing regime would be in place, and once that would be based on rapid testing technology, then it would be clearly less cumbersome to be an airline passenger. We think that it is possible to take care of health safety and control the spread of the virus with rapid testing. Based on the data that aviation industry has collected across Europe and the health authorities have collected across Europe, and this goes also for Finland, there is no virus transmission effectively on board aircraft.
Also when looking at people entering, for example, Finland from the high-risk countries, the number of infected people is very low. In case of Helsinki Airport, 0.9% of passengers from high-risk countries are COVID positive, and vast majority of those passengers are not in a stage where they could be any more infecting other people because they have been having the virus and the disease previously. We feel that this testing regime is possible and that would be a key enabler for aviation to start to recover and the amount of passengers to start to increase.
Okay, thanks. Very helpful. Another one. In your report today, you stated that in your later bookings, you are seeing relatively strong demand towards summer 2021. Does this tell you that there is a significant pent-up demand after the staycation period in 2020?
What we saw during the course of the past summer is that whenever travel restrictions were lifted on certain routes, then the demand was relatively quick to come back. That to us is a clear indication that there is a strong pent-up demand out there. There's a big social need for flying. Many people, for example, have families in other countries, and then this kind of travel is not enabled for the time being. Businesses need travel, and people do want to travel. People do want to experience new things. We think that there is pent-up demand, and we do think that travel restrictions play a key role in terms of enabling the demand to come back.
Thanks. Still referring to your report out today, you were expecting that the competition to be fierce once the recovery starts. Could you elaborate a bit more around this view, i.e., are you seeing that the rivals are likely to prefer cash flow over the profit, rather than rebuilding their equity? Do you see overcapacity once the recovery starts?
Yeah. I think that during the next one or two years, when the aviation climbs back to demand levels of 2019, by definition, there will be overcapacity on the market, even though fleets are optimized, even though aircraft are retired, and so on and so forth. After that, the equation can change because clearly airlines are not making investments to new aircraft, and then that will be impacting the competitive dynamics going forward. When it comes to the question of how airlines will behave in the future, it is clear that airlines will accumulate a lot of debt right now, and that debt needs to be paid back. There would need to be some discipline in terms of profitability and pricing going forward. That is one of the driving forces.
On the other hand, history tells us that this industry is a very competitive industry, and at times, airlines are prioritizing sales intake and cash flow over profitability. That is a driving force that points to the opposite direction. How exactly this will be playing out remains to be seen. Our logic is that set your sails for storm, but hope for good weather. We want to be prepared for tough competition out there in the marketplace post-pandemic. We want to come out strong from the pandemic, and we would rather be on the winning side, obviously, post-pandemic.
Right. Thanks. If I may still one more on your own current fleet and capacity planning. Given the current situation, will you be downsizing your own fleet over the next few years? Should we expect any kind of a material financial impact from the possible divestment of the oldest aircraft?
We will be optimizing our fleet. Some of the things that we will be doing, we start with couple of our older narrow bodies. We start to part out. That is an example of the measures that we are taking. We are observing the aircraft market at this point of time, and then we maintain readiness to do both narrow body as well as wide body sales if we find the right deals out in the marketplace. Optimization of fleet means that we are getting ready to reduce number of aircraft in our fleet. That process is likely to be stepwise and gradual, and no drastic moves as such. When it comes to the balance sheet values of those aircraft, based on the deals that we can find, there might be some sort of booking needs in this one. In terms of order of magnitude, they shouldn't be that material.
Mika Stirkkinen here. Yeah, the potential sales value won't be huge, and the potential write-off won't be huge. However, the key driver here is that we want to avoid the potential maintenance cost for those individual aircraft, and that maintenance cost would materialize next year. That's the key driver here in our contemplation of exiting certain units of our fleet.
All in all, when we look at our balance sheet, we think the balance sheet is solid.
Yes. Understand and agree. If I still may, could you disclose that do you have any leases maturing in 2021?
Nothing material.
All right. Excellent. That's all from my side. Thank you very much.
Thank you.
Our next question is from Achal Kumar from HSBC. Please go ahead. Your line is open.
Hi. Thank you for taking the question. I had a few questions. First of all, basically, I wanted to understand the trading environment. Basically, you already have opened few flights to Asia. Basically what I wanted to understand from you is that, of course, although the demand is low, but what kind of change in the behavior pattern of the bookings you are noticing at the moment, and what is the sort of timeline for opening the China market for the passengers? Then how the fares look like. If you could please talk about that, the overall trading environment as such.
Yeah. Of course, the whole trading environment is very subdued given the external factors that we are seeing. When we look at the long-haul traffic especially, the load factors on some of the long-haul routes are low. They are in teens. Approximately, could be a seat load factor of 20%. That is the sort of order of magnitude that we are talking about, meaning that when it comes to long-haul routes, those routes are cash positive because of the cargo impact on those routes. When it comes to China in particular, the Chinese routes, and we are currently flying once per week to Shanghai, once per week to Nanjing. They are the best performing long-haul routes that we are currently having. The seat load factors are approximately 70%. Under this environment, relatively good.
This is, of course, on the back of the overall capacity of international flights being very limited to China at this point of time.
What kind of behavior change or booking pattern? What kind of change are you noticing at the moment? What kind of change in the kind of mix of traffic, basically, on Chinese routes? That's what I want to understand.
Yeah. As stated, when we look at the overall traffic and the overall trading environment, all routes included, what we clearly see is a late booking behavior. The bookings come in very late in general, and I think that this is the behavior that many airlines have been mentioning in their commentary recently. When we talk about China specifically, I think that what we need to remember here is that we are effectively talking about two flights per week. One to Shanghai, another one to Nanjing, and therefore, we cannot really talk about trading environment as such. We can talk about anecdotal evidence related to couple of flights. As stated, the load factors on those two flights are good. The profitability of those flights is good. We would definitely want to fly more to China if we would be allowed by the Chinese authorities.
Is there any timeline given by Chinese authority for market to open? That is still not very clear?
You are referring specifically to China now?
Yeah, exactly.
There's no communicated CAAC, the Civil Aviation Authority in China, has not communicated a specific timeline on this one. I think that they are observing the virus situation, both in China as well as in Europe and elsewhere in the world. They have had this policy of one flight per one airline, per one country per week. Under that policy, we got our aviation right to Shanghai. When we performed well, especially in terms health and safety, effectively not bringing the virus to China, because you would need to remember that all of those passengers are being tested in China, then we got this other permit to Nanjing.
Right. That broadly, you talked about the long haul and then specific to China. How about the short haul within Europe?
Yeah. In terms of the short haul, what we are seeing is that as so many other airlines out there, the domestic traffic is the one that comes back first, not being restricted in terms of travel restrictions, and that is the case with us as well. In terms of short haul in Europe, it is clear that the travel restrictions are prohibiting us quite significantly.
Wherever you are operating, what kind of environment are you facing? Is there any particular routes or probably within Nordic? I just want to understand, is there any particular route where you are enjoying very strong demand, or you're open to fly, or is it the same across Europe?
Yeah. It is pretty much the same at this point of time because as stated, the travel restrictions in Finland have been among the most stringent in Europe, and that means that there are no green list countries effectively for Finland right now. There is no unlimited travel or unrestricted travel at this point of time. Therefore, what we see in the European short-haul landscape is basically pretty evenly spread across the routes.
Maybe the exception here is that the longer domestic routes are performing rather well.
Yes.
Those Oulu and Lapland destinations.
Yeah. Domestic routes are performing. Yes.
Yeah. Still over there also the capacity is lower than last year.
Right. Moving on. Also wanted to understand about the cargo flying. Basically, of course, the demand has been strong, but as the market reopens, do you expect some bit of fall in the demand and the pricing, and how profitable the cargo flying is? If you could please talk about that.
The price of cargo per ton has been coming down a bit from the peak levels in Q2, in the midst of the pandemic. The profitability of cargo is still good, and it is contributing well to the cash positivity of our flying. Of course, seasonally, Q4 is by far the strongest in cargo traffic and therefore, that seasonality pattern we see to hold also during this year. There will be increasing demand for Q4 in terms of cargo.
Right. Okay. On the cost, could you please explain a little bit more about your cost cut target? You've increased the target. Basically, where these targets are coming from? Are they mainly coming from the labor side, the salary side, or what exactly how the mix looks like? If they are coming mainly from the salary side, what kind of challenges do you expect to achieve these targets? Do you expect everything to be smooth and then you'll be able to cut costs? If you could please talk about a bit more on the cost side, that would be helpful. Thank you.
Okay. In terms of cost and in terms of permanent cost savings, we are turning every stone. We are looking at every cost item that we have. We are looking at sales and distribution cost, we are looking at real estate cost, we are looking at IT cost, we are looking at processing cost, we are looking at administration, we are looking at compensation. We have been agreeing these savings agreements with our unions. We have been reducing the number of our personnel. We are looking at all of it. No stone is remaining unturned. As stated, the people reductions, that math you can probably make yourself when you look at what is the sort of number of people that we are reducing during the course of this year on the back of retirement, natural churn and job redundancies.
The role of that out of the total savings that we aim to materialize is definitely significant. Equally well, there's much more to it. We continue to pursue those savings as we speak.
Do you expect any challenges to achieve those EUR 140 million savings, or do you think you should be able to achieve easily, smoothly?
Of course, it's hard work. We have been progressing well. Our original permanent cost savings target that we announced during the spring was EUR 80 million. We increased that to EUR 100 million, and now we have been progressing so well that we feel comfortable to increase it to EUR 140 million. It's not easy. It requires quite significant effort across the organization. It also comes from small streams. We will definitely push in order to reach that target. At the same time, we have set the target so that we really feel that it is possible to achieve.
Particularly in terms of employee costs, so how do we see employee costs evolving over the next two years? Once you start increasing your size of operation, then don't you think you'll need more employees and you'll be taking those back? Whatever savings you're aiming might not be possible if the size of the operations increases and then you need to take employee costs back. How does that work?
This is very important question. Thank you for that question. What we are talking about here with the EUR 140 million is permanent cost savings with full run rate impact of 2022. Permanent means that we do not expect that cost to come back. That there will be longstanding permanent productivity improvement in the organization on the back of changed organizational structure, on the back of changed processes, on the back of changed way of working, for example, moving into agile method in terms of our various units. That's very important to say. Then the flying crews, pilots and cabin crew, were not part of the people redundancies. That means that these employee groups, well, there are high professional standards in these employee groups, and the training of these employee groups is also a relatively sizable investment.
Therefore, we want to maintain flexibility that we can call back these employees back to work, and with that, we are able to scale the operations going forward once the demand starts to come back. A key component of our rebuild plan.
Okay. Perfect. Couple of more, if I may. One, basically, I also wanted to understand about the vaccine distribution, which you just talked about, and there was a press release about it. I just want to understand how much cash do you expect from vaccine distribution and how big it could go, actually? The other thing, if you could please talk about the competitive landscape, how the competitive landscape is behaving, and how do you expect that going ahead? Finally, I'm really sorry if I missed it and if you spoke about before, about your CapEx commitment and debt repayment over the next two years, please.
When it comes to the cash impact of the vaccine distribution, the short answer is that it's too early to tell, too premature. We do not have yet estimates on that one. Of course, we hope to be able to help in the vaccine distribution, and we are positioning ourselves for that. In terms of the competitive landscape, all airlines in Europe are scaling back their amount of flying at this point of time. If we look at the Helsinki hub during this time, our sort of normal market share in Helsinki hub has been closer to 60%, and now we are above 70%. At this point of time, our market position in this very sort of little volume that is out there on the market has been strengthening. The question is that how will this play out going forward?
Will some of the competitors, like Norwegian, will they come back to Helsinki hub, and if they will, to what extent? The jury is out in that sense, and I think that it will be interesting to observe what will be happening during the coming months on that respect. We feel that in the relative game, when we compare ourselves to those competitors who are relevant to us, we are well-positioned in the relative game. Mika, perhaps you can take the investment at the CapEx.
Investment and CapEx?
Yeah.
I guess we covered that.
Yeah, he did not hear that.
Yeah.
You didn't hear about the Airbus deferrals or?
I think I missed that part. I'm really sorry for that.
Okay. We are in advanced stage with negotiations or in negotiations with Airbus, and we foresee that during this quarter, we are able to come out with a stock exchange release on the Airbus contract deferrals. As you might remember, we have two deliveries coming up next year and one in 2022. Additionally, we are working on other investment cashflow deferrals. Then the part of the investment cashflow, what will remain is the maintenance CapEx. There the maintenance CapEx is dependent on the anticipated volume of flying. One could estimate that to be between EUR 50 million and EUR 80 million, and really depending on the amount of flying. Is that sufficient for you?
Our next question is from Nicolas Gourdain from Lexcor Capital. Please go ahead. Your line is open.
Yes. Hello. Good morning. When you did a rights issue early in the year, I think the thought process was to say, we might be burning EUR 500 million of cash this year. It's a tough year. We need to effectively come out of the crisis with a balance sheet that is as strong as what it was before entering the crisis. I guess unfortunately now it looks like we're going to have more than what we hoped for a few months ago in terms of cash burn.
I guess, is this sort of logical next step to say, maybe not now, but when things look a bit better, there's a vaccine out there, et cetera, should we be thinking about a further strengthening of the balance sheet in terms of raising additional equity in order to compensate for the additional cash burn that you would have had compared to initial expectations? Thank you very much.
Thank you for that question. No. The answer is no. Further equity raising is not part of our plan. When we look at the equity ratio, when we look at the gearing, we feel that they are in healthy levels at this point of time. The measures that we have been taking with the pension fund, they will be contributing to the equity. For example, the EUR 85 million that we announced today. That of course will be helpful in terms of equity and balance sheet. In terms of future financing steps, we especially focus on debt side of things, and there we are looking at aircraft asset-based transactions.
Thank you very much for your care.
Our next question is from Pia Rosqvist of Carnegie. Please go ahead. Your line is open.
Hi, thanks for taking my question. It's Pia Rosqvist from Carnegie. I had a question on the possible rights issue, but that was already answered, but a few still. With regards to your cost savings program of now EUR 140 million, you say every stone has been turned. Is it then fair to assume that from here on it's very difficult to reinvent the cost base?
Yeah, of course. I mean, the further we go in the progress, the harder it gets to realize results. On the other side of things, what we have experienced during the last couple of months is that when we have been digging deeper and deeper into possibilities, we have been finding new things as well. We think that the target of EUR 140 million is ambitious for us, but at the same time, we feel confident in terms of our possibility to reach that target. That is how the target is set. That is the thinking behind the target. You can rest assured that we won't be laying on our laurels on this one. If we find new possibilities to reduce the cost, we will certainly take home those possibilities.
We keep on pushing and we keep on pushing, and then we keep pushing once more on this thing.
Mika Stirkkinen here. I've been here with Finnair for 21 years, now we are doing things what we have never done before. New type of processes, new cost cuts what were impossible in the past. Because when you just have to do it, then you invent also. We have some process development items which were practically impossible in the past.
What you need to remember in this one is that when we are talking about the EUR 140 million target in terms of permanent cost savings, we are talking about that target net of inflation. Inflationary type of escalations would be netted out of this so that the full outcome would be EUR 140 million. If you compare that EUR 140 million, for example, to our EBIT in 2019 you would find that that is a very significant number. Assuming that the demand comes back at least to great extent, then of course assuming that when we have more normalized revenue, more normalized turnover, that will be making the company clearly more profitable.
Okay. Thank you. On your strategy, you have said you will return to your strategy at a later point, today how do you view your commitment to North America? You increased capacity prior to the pandemic outbreak, what is your view today?
The focal point of our strategy is connecting Europe and Asia. That is the raison d'etre for our airline. We have been increasing the North America traffic gradually over the past years, and we are committed to those routes once the demand will come back and the pandemic clears out. We do not have any structural plans related to North America to either side, neither to reducing it or neither to materially increasing it.
One needs to remember that in the North Atlantic business, we are part of AJB, Atlantic Joint Business, and that supports our North Atlantic operations well. Giving us connections in the U.S. and feed.
Okay. That's all for me. Thank you.
Thank you very much.
There are no further questions. Oh, sorry.
Yeah.
I'll hand back over.
If there are no further questions, we can probably end the session. Thanks for all good questions and thanks for joining the call.
Thank you also on my behalf.
Thank you.
Bye-bye.