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 Strategy 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.
Thank you, Erkka, and welcome, everybody. Thanks for putting the time aside to join this call to discuss our future strategy. When we go into that, the new strategy is all about restoring the profitability of Finnair. Restoring the profitability after the hard pandemic years when we have accumulated an operating loss of approximately EUR 1.2 billion and restoring the profitability even if Russian airspace is closed to us. Before we look into this actual strategy and the future-oriented parts of that, let's just recap what has happened during the past couple of years.
Going back to 2019, we were an airline defined by our strategy of connecting Europe and Asia via the short northern route, utilizing the Russian airspace. We carved ourselves a niche for that one, and we successfully implemented that niche strategy for 20 years.
In 2019, we achieved our all-time high number of passengers, close to 15 million passengers being a growing and profitable airline. We had executed on our Asia strategy for 20 years, and that strategy, when it was introduced, was a very natural choice, a choice based on geography and the geographical position of our Helsinki hub en route to Asia from Europe. Then, of course, the pandemic hit us, being the first worst crisis in the history of aviation. We needed to ramp down our flights. We needed to furlough all of our personnel to preserve cash. We raised EUR 3 billion of new debt and equity.
We took away the variable costs. We realized EUR 200 million of permanent cost savings. All of this we did in order to create a path through the pandemic with the idea that we would come back to the strategy of connecting Europe and Asia via the short northern route after the pandemic. The war broke out. Russia attacked Ukraine a bit more than six months ago, and that really was a game changer in terms of our strategy.
The Russian airspace was closed for us, and at the same time, we saw the jet fuel prices basically doubling, and now we are looking at energy war in Europe and an environment of high inflation, higher fuel costs for some time to come.
Whereas the measures that we needed to take during the pandemic were of temporary nature, we knew that the pandemic will blow over eventually, even though we did not know how long it will last. The changes that we are now facing are of more permanent nature, and therefore a different set of tools is required to adapt to this reality and restore our profitability. The Russian airspace closure has a significant impact on our niche strategy. It increases the flight times to Asia 15% to 40% to our important markets in Japan, South Korea, and in China.
The flight times are 40% longer than they used to be. This, of course, has a direct correlation to fuel cost, but it also decreases the aircraft utilization, and we have inefficiencies in crew utilization as well. During the springtime, we introduced our first response measures to the change, and we started to adapt to the situation. We pivoted our network to west. We introduced an additional cost savings target of EUR 60 million, and realization of that target is moving forward according to plan. We also leased aircraft and crew to our airline customers, Lufthansa and British Airways.
That has proven to be a good and profitable move during the summer. Putting all of this together, we see significant changes in our operating environment. Unfortunately, there's no end in sight for the war in Ukraine and we will, as stated, need to adapt to the reality of Russian airspace being closed for us. We will also need to remember that COVID-19 pandemic is still impacting our business.
In our home markets in Europe, the pandemic is fading to the background on the back of increased immunity levels. In Japan, the market is just opening up as we speak. China, of course, with the zero-COVID policy, is still largely closed for any meaningful traffic to China. The energy crisis, the historically high fuel price, which is magnified by the weakness of the euro, even though we are hedging for this, that, of course, is something that is a significant factor behind the strategy change as well.
While we see good demand for our flights right now, and we have especially seen the corporate travel to come back strongly after the summer. You know, looking a bit further, looking into 2023 and beyond, we will need to be ready for inflation softening the demand because of the limitations in discretionary spending that customers most likely will be experiencing. With this, we now must compete without geographical advantage. The Asia routes have been among the most profitable in our network. As stated, we don't have this unique geographical advantage with anymore.
That means that, on the markets that are now open to us, we need to compete on markets that are less regulated and more competitive, and we will be also meeting competition with lower cost structures. That means that we need significant structural renewal in the company, most notably related to costs.
When we go into the new strategy and the targets of the new strategy, we aim to come back to the pre-pandemic levels of profitability measured by comparable EBIT. The comparable EBIT should be above 5% by mid-2024. An important target, financial target leading to this is that our unit costs should be reduced by 15% yet again by mid-2024 and when compared to 2019 levels. We are keeping our sustainability targets unchanged. That means that we will stick to the sustainability strategy that we launched before the pandemic, going for carbon neutrality by 2045.
An important interim target being that we want to reduce our carbon footprint by 50% by the end of 2025. A part of this target will now be reached by us reducing the volume of flights. The three key measures that we will be taking to reach these targets are a geographically more balanced network. We will optimize and reduce the size of the fleet according to the needs of this network. We will significantly strengthen our unit revenues. Partnerships, in many ways, move to the core of our strategy. We will reduce our unit cost by looking into all cost categories.
We will be building a sustainable balance sheet that will be enabling us to invest in the future. While doing this, we want to be among the industry sustainability leaders related to sustainability overall and related to climate targets in specific.
A key starting point for all of this is that we need to be competitive in terms of customer experience. We think that our product and service quality already today is a differentiating factor for us. We and the whole aviation cluster in Finland has been investing to this quite a bit. We have a brand-new Helsinki Airport that is a very important part of the journey of our customers, receiving very high customer satisfaction numbers from passengers. We have been introducing a new elevated long-haul experience.
We are in the middle of that investment and the new business class seat, the AirLounge, the new premium economy travel class, the refreshed economy class is receiving very good feedback from our customers. That is already a differentiating product.
The operational quality. If we look at the challenging summer in European aviation this summer, with all of the delays, all of the flight cancellations, we come out as the most reliable airline of the bigger airlines in Europe when measured by on-time performance or when measured by regularity, the number of cancellations. We have a very high customer satisfaction around 40% and, as stated, this is something that we want to retain and keep going forward and differentiate accordingly.
Of course, this means that the new strategy means that there also will be changes to the product offering and to our network. One of those will be that in long haul, our proposition will be high quality and differentiating travel experience.
In short haul, we will need to especially improve our profitability and we will go for smoothness, simplicity, and efficiency. Less of our passengers will be transfer customers than they were during the pandemic. That means that more of our customers are experiencing long haul only proposition or short haul only proposition. Therefore, we will take this into consideration when positioning these products and that will be also a source of some cost efficiency.
The role of digital services automation is further increasing and we will certainly double down on that going forward. As stated, we will introduce a more balanced network. We will look to east, we will look to south, and we will look to west.
There's not much more in the north where we could fly to. In the east, we will keep our connections to the most important cities in Asia, Tokyo, Seoul. We believe that gradually China will be opening, so Beijing will be on the map eventually. Now flying to Shanghai, Guangzhou, also Hong Kong, Bangkok, Phuket, Singapore, will be there. On the Indian market, we will be increasing our flights. We just recently introduced a new route to Mumbai, in addition to the Delhi route that has been there for many years.
In Asia, we will be cutting back on the secondary cities, because we don't think that it would be possible to make them profitable with the increased flight times and increased costs going around the Russian airspace.
Middle East will be a very important market for us, going forward. We just recently announced a strategic long-term partnership with Qatar Airways, starting daily flights from Helsinki, Copenhagen, and Stockholm to Doha. We have also agreed that we will start daily flights from one additional destination in Europe that is yet to be announced. That means that we will have, during the winter, 28 weekly flights to Doha alone and, on top of that, couple of more to Dubai. 30 weekly flights to Middle East is more than we had to mainland China before the pandemic.
This basically underscores that with the help of Qatar partnership, Middle East is becoming a big, big market for us, going forward. We are also increasing and have increased during the summer flights to North America, where we are benefiting from the Atlantic Joint Business and especially of the partnership with American Airlines and also Alaska Airlines recently joining oneworld. We will be optimizing our fleet and reducing the size of the fleet according to the needs of this network going forward and based on the demand that we will be seeing going forward.
One factor impacting that demand is also the way and the timetable China will be opening travel after the pandemic. We do see some early cautious steps taken by China. We just recently got a new permit to fly to Guangzhou.
We have opened that route with one weekly flight, and there are sort of some indications that China would be opening the aviation a bit during the remainder of this year. As stated, significantly strengthening our unit revenues is certainly a big part of our agenda. We will double down in terms of digital experience, not only in terms of sales, but also in terms of self-services that will, you know, provide easier to use services for our customers, but also cost efficiency for Finnair.
During the pandemic, we have been doing a lot in terms of improving the direct access to our customers, increasing the share of direct channels in our sales. Before the pandemic, the direct distribution was a little bit less than 40% of our total sales.
Now we have been really moving the needle on that respect. Currently the direct distribution share is 65% in our business, including Aurinkomatkat. This really generates possibilities for us to increase the unit revenues by means of up- and cross-selling, but also, we have been able to reduce the distribution costs significantly. Generally, we have been greatly increasing the conversion rates, the clock speed of our digital sales organization, and the whole sales productivity has increased a great deal in the direct channels.
Now we need to do the same in the wholesale channel with the travel agents by means of new distribution capabilities, NDC technology that will enable better upselling and cross-selling. We now have the foundations in place. For example, a recently renewed contract with Amadeus for that. Competitive fare and ancillary products enabling customer choice will be very important for this.
Once we utilize the new distribution setup in full, then we are certain that we can improve the customer relevance, create more personalized offers for customers, and with that, we can improve customer NPS and significantly improve our unit revenues. As stated, partnerships move to the core of the strategy in many ways. Airline partnerships are a key component of that with oneworld really increasing its importance for us in many ways. With the airline partnerships, we go for network reach for our customers, and we go for distribution power.
That is already well visible, for example during the past summer on the US markets, Atlantic Joint Business supporting us greatly, and especially the distribution power of American Airlines being very meaningful for us. Same in Japanese market, the joint business with Japan Airlines is very important for us, and I already mentioned the importance of Qatar partnership in the Middle East.
During the pandemic, we formed a new partnership joint business with Juneyao Air in China, and we hope and believe that once China opens up, then we can capitalize on this partnership in a far greater scale than today. Also, operative partnerships, be that with AAP, Adecco, Airpro, Norra, they become very important for us in order for us to reach cost efficiency and flexibility.
In this respect, Finnair will be moving a couple of notches more toward being a systems integrator, rather than doing everything in-house. We will also work with our partners related to sustainability, Neste, the engine manufacturers, Rolls-Royce being an example. That's very important part of the agenda. Then the third layer of partnerships is very much about product offering and brand partnerships. For example, recently launching a new credit card, Finnair Visa with Visa and Aktia, having all the Finnair Plus partnerships, all the brand partnerships that we are having with Marimekko and Iittala and so forth.
Being relevant to our customers, brand relevance and new revenue opportunities. All in all, working with partners becomes important for us and partnerships are a way for us to seek scale beyond our size. In terms of improving, our competitiveness and reducing the unit costs with 15% compared to 2019 levels, the cost savings that we have realized during the pandemic go into this target. The EUR 200 million plus of cost savings, that permanent cost savings that we have been realizing during the pandemic, are included in the target.
The ballpark number of what we need to achieve going forward on absolute terms is somewhat similar than what we have been doing during the pandemic. The final absolute number will depend on what will be the size of Finnair eventually, and that in turn will depend on demand. That is why we are expressing the target on percentage terms in terms of unit costs.
We will need to see cost savings from all cost categories. Fleet costs, optimizing the size of the fleet, looking into all parameters of fleet costs will be very important part of the cost savings. We will look into personnel costs. We start negotiations with all of our employee groups to find new cost savings and new flexibilities in the CLA terms. We will look into, for example, route specific outsourcings of our cabin crew. We are not ruling out that there wouldn't be personnel reductions either.
If those initiatives materialize, then they will be handled as per usual processes, announcing the change negotiations separately. We will yet again do a round of suppliers and vendors as we have done during the pandemic.
During the pandemic, we did it, eyeing the return to the Asia strategy. Now with new strategy, we believe that there will be new possibilities in terms of cost efficiencies from vendors and suppliers. Same applies to premises. We will also look into structural changes. We will on case-by-case specific terms, look into potential further outsourcings. We are also open to insourcings if that serves the strategy and provides cost savings. We also have some smaller examples of that. The bottom line being that we will need to look into all cost categories in a very diligent and rigorous fashion.
When implementing all the strategy, we believe that there are many strengths that we can build on. As stated, we believe that we have a differentiated product, the operational quality being a very reliable airline. We have a strong brand. We have a strong market position. We have all of these partnerships that we can capitalize on. We have a proven track record of adapting and implementing during the pandemic years. We have proud history of almost 100 years as one of the world's oldest operating airlines. Most of all, we have great people and great capabilities in this company.
That gives me a lot of confidence that we will reach the targets of this new strategy. We will restore the profitability and come back to EBIT of above 5% by mid-2024. It is clear that in order to reach these targets, we will need the support from all key stakeholder groups. When we do that, then I'm sure that we can build a new Finnair, an airline that our customers, employees, and all of the stakeholders can continue to be proud of. Thank you. I will stop at that, and now we will open for questions.
Thank you, Topi. Now would indeed be a convenient time for any questions you may have. Kindly follow the operator's instructions to present them.
Thank you. If you would like to ask a telephone question, please signal by pressing star one on your telephone keypad. That is the star or asterisk key followed by the number one to pose a telephone question. Please ensure your mute function is turned off. We will take our first question today from Giovanni Caforio of Lexcor Capital. Please go ahead.
Yeah. Hello. Hi, this is actually Nicholas from Lexcor Capital on the same line as Giovanni. Thank you very much for the very good presentation and, you know, super helpful to get all the detail and well thought through. I guess the one area you didn't touch on so much, and I appreciate it might be a bit early for that, is the balance sheet. You know, obviously, you know, might be a bit biased here. We own a lot of bonds, so you know, sort of more on that side, I guess.
I guess my question to you is how do you think about what is the sustainable leverage the company can have? How do you think of you know what sort of capital is gonna be required? I guess also you know speaking of the timing what are sort of the next steps so that we can get clarity on that? I mean what needs to happen and you know what's the timeline here that you guys are thinking about?
Yeah. Thank you. Thank you, Nicholas, for the question. You know, restoring profitability, as is the headline of our strategy, is the key here. I mean, it's needless to say that continued net losses are not benefiting any of our stakeholders. We need to come back to profitability, and that is where we start the implementation of strategy and of reaching the strategic goals that we have set for ourselves. Now the implementation starts, and we will be starting the discussions related to cost savings with our unions, with the vendors, and then we expect that we will be having constructive dialogues on that note.
There are many ways in which each of the counterparties that we have, each of the stakeholders that we have can support our strategic goals. Then perhaps, you know, on a separate note, I think that we have been discussing this with you previously, we have this EUR 400 million capital loan with the government of Finland and EUR 110 million of that remained undrawn at the end of second quarter, and we will be drawing on that during the course of this quarter.
Okay. Probably a bit early to discuss this one, but you know, presumably intention remains to call the EUR 200 million perpetual loan next year before the step-up.
Mika, did you hear the question?
I heard the question. We will work with all the counterparties to reach strategic goals. By concentrating on achieving profitable growth, as Topi said. We haven't made any decisions in the board on this, and we will come back to that in due course.
Thank you very much.
We will take our next questions from Hans Elnæs of WinAir. Please go ahead.
Good afternoon and thank you for taking my questions. Two from me, please. First, you have a fleet of 25 long-haul wide-body aircraft, A330s, where four are leased, and 17 A350s, whereof 12 of them are leased. Can you give us some more information on what you are planning in terms of fleet reductions and how you are planning to do that? If you're looking to have a single type of fleet, only A350s or still a mixed fleet of those two aircraft types you have today.
My second question is, you outlined your plans for redesigning your long-haul network. I didn't notice anything to South America and Africa. Is that not on the table? Can you also give us some flavor on the Stockholm Arlanda test operation on long haul? What was the primary reasons why it was discontinued? Any plans for trying that again? Thank you very much.
Okay. Thank you for these questions. I think that there are many good points in these questions, so I try to remember all of it. If I start with the fleet and the aircraft types. If we look at our current Airbus 350 fleet, we have a couple of Airbus 350s going through refurbishing, as part of the changes, part of the investment that is related to the elevated long-haul experience. Apart from that, the Airbus 350 fleet is flying as we speak, our own revenue service, and then we have three of those wet leased to Lufthansa Eurowings until the end of March next year. That is the current situation with Airbus 350s.
Then related to your question related to Airbus three thirties, what you should note is that we have recently announced this strategic and long-term collaboration with Qatar Airways, and we have also announced that those routes we will be flying with our Airbus three thirty equipment. Because those aircraft are very suitable for the routes in question. This is also good for us in a sense that the applicability of Airbus three thirties was quite limited after the Russian airspace closure, simply because the range was not enough to markets like Japan, South Korea or China.
Airbus three thirties, we can basically fly to Middle East, India and US From that perspective, the Qatar deal was quite important to us. Related to your question about the fleet size, we will be optimizing and reducing the size of the fleet according to the needs of the network. One factor, important factor, impacting the size of the fleet going forward will be the demand that we will be seeing on the market. As stated, especially the opening of China and the timetable of China opening will play a role. We have guided that during fourth quarter we will fly 80% to 85% of our pre-pandemic capacity.
That of course gives you some idea of what we see that the network can absorb in terms of capacity. We will be updating this capacity guidance on rolling basis going into 2023. Perhaps that would be the answer related to the fleet and the aircraft types. Moving into the network and specifically your question about Africa and South Africa. We have been considering that as well, but the collaboration with Qatar is very important in this one.
Because if you look at Qatar network, keeping in mind that we have a code share with them, they are strong in Africa, they are strong in Australia, they are very strong in Southern Asia. When we fly from Helsinki, Stockholm, Copenhagen to Doha, we will provide all of these great connections to our customers. With that, we believe that we can cover the African market as well.
Finally, related to your question on Stockholm, I mean, many things of course are happening in Stockholm, and one of the main drivers is that SAS is undergoing Chapter 11, and we are of course observing that what kind of decisions they will be making related to their fleet and related to the network and what kind of competitive situation we will be seeing at Stockholm Arlanda going forward. We will maintain our presence in Stockholm Arlanda Doha flights. We are adding the Doha flights from there.
But at the same time, we are constantly evolving our network and then the US flights that we had during the summer we cut off from our winter schedule. They worked reasonably okay. They were cash positive, but not enough to warrant continuation during the winter, so that we could reach our profitability targets. We keep an eye on the Arlanda market and continue to fly to Doha, and then see how the situation develops.
Thank you very much, Topi. Just one follow up on the network here. I also ask you in any views on operation to South America, as there are no direct flights from Scandinavia or the countries to any countries down there.
No, I think that, as stated, this is where the strength of oneworld comes to play. Through the oneworld carriers, we are providing very good connections to South America, Iberia being a case in point. What we also see is that the new route that we have to Dallas being the main hub of American Airlines, actually much of that traffic is connecting traffic and many of our customers have found the Dallas route as a good connecting hub to South America as well.
Great. Thank you very much, Topi, for your good answers, and have a good day.
We will take our next question from Jaakko Tyrväinen of SEB. Please go ahead.
Yes, good morning. Jaakko Tyrväinen here from SEB. Oh, sorry, good afternoon. May I continue on the future fleet size? Could you continue or indicate any kind of ballpark fleet size towards, let's say 2025? Also a bit more color how you are seeing the mix of narrow body and then wide bodies to develop in the new strategy. Let me continue with a direct follow-up on this one as well. How you are planning to reduce the fleet size? Will the natural aging of the aircraft and lease maturities take care of this or will you sell some of your aircraft? Thanks.
I mean, if I start with your second question about, you know, the optimum balance of narrow bodies and wide body aircraft. The new strategy means that we continue to be a network airline. A balance of narrow bodies and wide body aircraft will be needed for us to maintain the kind of network. With the partnerships that we have been finding in the US, and in the Middle East, and looking into China opening up, further capitalizing on Juneyao partnership, there will be use for our long-haul aircraft, as well.
When we look at the fleet size, as stated, we will optimize and we will reduce the size of the fleet according to the needs of our network. What will be a key determinant for this is the demand that we will be seeing going forward. The demand on all of our markets, be that US, be that Middle East, be that India, and then especially China, where the timeline of China opening up is a key outstanding question for our network. As stated in fourth quarter, we will be flying 80% to 85% of the capacity in comparison to pre-pandemic levels. That gives you some kind of an idea of what is our starting point for the thinking.
Okay, thanks. Still on this topic, if I may continue. Could you indicate or state that how many lease contracts you have maturing in, let's say, in 2023 and 2024?
Mika, if you.
We are not disclosing that, but you can get the educated guess by looking at the lease maturity tables or the lease liability tables in our annual and quarterly reports.
Okay, thanks. I recall this answer from my previous questions as well. Continuing on the balance sheet, what would be kind of a comfortable equity ratio level before you could consider launching a kind of a larger fleet renewal investment?
The fleet renewal is not actual for us, right now. I mean, the new strategy is all about restoring the profitability. Restoring the profitability in the reality when Russian airspace is closed for us. We want to reach our strategic goals in terms of EBIT, in terms of unit cost reduction by mid-2024. Fleet investments are not actual for us, right now, and nor will they be during the period when we go for the profitability targets.
The work that we have been doing, especially in terms of optimizing the lifetime of our narrow body aircraft, during the pandemic, is serving us very well right now. We are happy with our narrow body fleet operationally that will meet our operational quality standards, and then we take it from there.
Okay, I understand. Thanks. My final one on the network, the future network, and especially the traffic between North America and India. How closely you have analyzed the potential of that market and could you consider that Finnair could play a role in terms of transfer traffic from North America to India towards the end of the decade?
Yes, we think that. We have been, of course, looking into this, and we have taken note that the economy in India right now seems to be dynamic as opposed to many other markets and that we see globally. We have also taken note of many of the Gulf carriers, you know, Emirates, Qatar, Etihad, also Turkish Airlines included in that, not receiving that many more new aviation rights to India.
There seems to be demand on the Indian market, and the supply additions by the Middle East carriers have been limited lately. This, of course, is an interesting development to observe. There are significant traffic flows between India and US.
In particular, it makes sense to fly via Helsinki, especially with our very smooth connecting experience on the brand new Helsinki Airport. I think that we have strengths on this market. The Mumbai route has been starting out well. In relation to this, we also need to remember that there are opportunities in the Middle East.
The Doha flying together with Qatar Airways will provide connections to many other cities in India where we are not flying directly. Also the connections from Middle East to US via Helsinki are interesting in many ways. In our thinking, you should view India and Middle East in parallel and consider the transfer potential from that.
Okay, interesting. Thanks. That's all from my side.
Our next question will come from Andrew Lobbenberg of HSBC. Please go ahead.
Oh, hi there. Can I slightly come back on the network? Really you're gonna be losing the main Asia-Europe flows. You spoke just there of Middle East and India to US as aspirational flows. Are there any other flows that you think you can use to support the US flying? You know, you are obviously resisting giving us any clarity on your expected scale of the business and keep coming back to the fact that it's gonna be about the scale of demand. Doesn't it come down to the size of the market? The size of the market is Finland, and it's very small, plus whatever connecting flows you can see.
Perhaps it's because of labor negotiations that you don't want to be too clear on your imagined scale. Yeah, can you not offer some sort of parameters on the scale of the business going forward? In terms of partnerships, you spoke about American and Qatar. There was a notable absence of IAG from the group. Do you not see them as an important component of it? Just finally, sorry this is so many. Wet lease, do you expect that to be a part of the business on a mid or long-term basis, or is that just a transitional thing to manage the fleet surplus at the moment? Thanks.
Thank you, Andrew. Many good questions on that one. If I start with IAG, I mean, definitely IAG in total and BA in specific is very important partner for us. Very important oneworld partner for us. I was discussing the partners more in the long-haul context. We see IAG and BA especially as a key European partner. Hope that clarifies that question. In general, oneworld is becoming more important for us. Even more important now given the new strategy.
Related to the flows, one of the sort of positive surprises during this summer has been that we have also been getting quite a lot of Europe-US flows and especially US to Europe flows. So the proportion of US in our sales has been quite significant. I mean, if we look at, you know, the challenges that especially the European hubs like Heathrow, de Gaulle, Schiphol, Frankfurt have been undergoing, then clearly passengers appreciate the reliability of Finnair and the smoothness and the reliability of Helsinki Airport as a transition hub.
This is what I mean, that the hub, the new airport, and our operational quality is a differentiating factor for us, enabling us to tap into Europe, US flows as well, and position ourselves as a northern gateway, so to speak. That's definitely worthwhile to note.
Because here, especially the Northern Central Europe is the key market for us for this via Helsinki... [crosstalk]
Yes.
Flows, so Berlin and so on and so forth.
There has been sort of also some new flows that have been there. I mean, let's take US-Turkey as an example. I mean, when we look at the flows on a bit more granular level, that Turkey or Türkiye-US flow has been a positive surprise to us as well.
Interesting. Thanks. Can you say anything about the scale of demand? Cause it feels like you're avoiding answering everyone asking that question. Wet leases. Future of wet leases.
Yeah, the wet leases, if I start with that. The wet leases, as stated, during the summer, they have been proving to be a good move. Both Lufthansa and British Airways have been happy with the collaboration. Our operational quality has been visible to them as well, according to the feedback that we have been receiving. For example, Lufthansa has extended the deal of three wide-body wet leases, Airbus three-fifty wet leases until end of March next year.
We see that, I mean, given the operational challenges that many airlines in Europe have been facing and many airlines globally for that matter, have been facing, also the fact that both Airbus and Boeing have supply chain issues in terms of wide-body deliveries and also narrow-body deliveries.
There is clearly demand for wet lease services out there globally, and this is being magnified by global pilot shortage. That is certainly something that we have observed. Of course, the deals that we are getting in this space, they are short-term-ish, you know, six months at the time. The predictability and visibility over the long run is shorter. Clearly, the wet lease demand seems to be of a bit more longer nature than we anticipated during the springtime. We will keep our eyes open for the opportunities. Now our winter wet lease capacity is basically full with the continuation of Lufthansa until end of March.
You know, the question about the fleet, I stated the demand will determine this going forward. Yet again, I would emphasize that we have guided that we will fly 80% to 85% of our capacity during the core fourth quarter. We will certainly keep you updated in terms of what is the outlook on that one and what is our sort of capacity estimate on rolling basis going into 2023.
Okay, thanks. Good luck.
Thank you, Andrew.
We will take our last question today from Achal Kumar of HSBC. Please go ahead.
Yeah, hi. Thank you for taking the questions. I guess everybody has asked most of the questions. First of all, on the costs, I mean, you mentioned that you will be negotiating with all the vendors and all. I mean, having already negotiated, what kind of further scope do you see there? You mentioned that you already saved EUR 200 million of costs. You mentioned during last result that you have additional target of EUR 60 million. In addition to those EUR 260 million, what kind of extra savings do you see from here on?
To give you an idea of the magnitude, in the 15% unit cost reduction target by mid 2024, the EUR 200 million that goes into the target that we have already achieved is approximately half of the challenge. We need to realize another similar amount on that pool of work going forward. What the amount will be on absolute terms going forward, finally, that will be driven by the size where the airline will be ending up, which in turn will be driven by the demand that we will be seeing.
This is like rough sizing it, and this is why we are expressing the target on percentage terms from the unit cost, and that is how we will be following it up going forward. Then related to your question about where we can find the savings, specifically, for example, related to vendors. What you will need to remember is that we did a lot of cost savings during the pandemic, and we discussed with each of our vendors. We did that from the starting point of coming back to our strategy of connecting Europe and Asia.
That Asia strategy has been impacting everything and anything in our company and related to our core structure, you know. Starting from the bank structure that we have been having related to our network, up to, you know, the food and beverage offering on board our aircraft. That means that when we now start to change that, and the strategy is changing, the long-haul proposition will be different than the short-haul proposition.
We will need to look through the cost savings with an entirely new lens, and then this will certainly impact also the vendor discussions going forward. Certainly optimizing the size of the fleet, reducing the size of the fleet will play into this.
Okay. First I want to understand, if you could please share your thoughts around a path to reach that 5% EBIT margin by mid 2024. I mean, from here on, of course, looks like all the markets are challenged. Even, I mean, you know, Asia, I mean, as you mentioned, the flight length has increased significantly, so doesn't look like too much profitable operations on the whole, how do you see the path reaching to 5% EBITDA margin, EBIT margin by 2024. If you could please discuss or share your thoughts on that.
Yeah. I think that we largely covered the cost base or the cost side of things already. Probably no need to linger on that one. Revenue definitely will be big part of the equation as well. Then we are going for significant increase in our unit costs. If you look at the profitability of the Asian routes now during the past six months, when going around the Russian airspace, it's clear that the yield levels both in terms of passenger yield, but also in terms of cargo yield, have been going up significantly. You know, those flights are profitable as we speak.
In markets like Japan, in South Korea, we have a level playing field because the Japanese airlines and the South Korean airlines are also going around the Russian airspace. This is something to be kept in mind. In general, we have been seeing good development of demand during the summer, and that seems to go into the fall as well. We have been especially seeing the comeback of corporate travel now after the Nordic summer break. That is supportive of yields, and we are now in a clearly more stable situation than during the second quarter, as we have been able to factor in the increased fuel price to the fares.
This dynamic will be playing out, going forward. We also have new capabilities in the company. We have been moving into dynamic revenue management, and there seems to be value add from that capability to the revenue side of things. The point that I was making related to direct distribution and related to NDC in terms of wholesale distribution through travel agents, that is certainly a big part of the revenue upside. Selling, increasing the sales productivity, increasing the clock speed of the organization, and thereby the upselling and cross-selling.
We think that it is not that much about introducing new products to the market. It's actually very much about selling and servicing the products that we are having in a more efficient manner and scaling up the volume of customers receiving offers from us significantly.
Right. Okay. Could you also discuss, or if you could share your thoughts around the liquidity going forward? How do you see your liquidity and cash burn over the next two to three years?
Yeah. Liquidity and cash burn. I think what... [crosstalk]
You know what our cash position at the end of the quarter was. It was more than EUR 1.5 billion. On top of that, at that point in time, we had this EUR 110 million capital loan undrawn. The cash is at the sufficient level.
Yes. Okay. Finally, or coming back on the fleet. I mean, of course you said that the fleet number would depend on the demands, but, and you've talked about a wide-body fleet. Should we see a bit of play around on the narrow-body fleet? Do you think, I mean, you could actually your narrow-body fleet also? Or do you think that that should be the niche? How do you see that?
There's a little bit of interruption now on the line, so I'm not sure whether I'm getting the answer. The question was about narrow body fleet and whether we could do something around the narrow body fleet. I think that our answer related to the fleet question remains the same. What I would still like to emphasize and come back to is that, you know, fleet investments are not part of our plan right now.
During the pandemic, we did a very profound, very extensive piece of work optimizing the lifetime of individual narrow body aircraft that was targeted to narrow body fleet in particular. We are happy with our narrow body fleet. We think that meets the operational quality requirements that we have.
Okay. Perfect. Thank you so much.
I will now hand the conference back to our host for any additional or closing remarks.
Thank you. As there are no further questions, we shall conclude the call. Many thanks for the excellent questions and joining the call. We wish you a great day.
Thank you very much.
Thank you.
Thank you.