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 2023 Earnings Call. I have here with me Finnair CEO, Mr. Topi Manner, and we're joined by our CFO, Mr. Kristian Pullola, for the Q&A session. I will now turn this call over to you, Topi. Please.
Thank you, Erkka, good day, everybody, and welcome to this Finnair Q1 Earnings Call. The main headline for our Q1 is that the strong demand and well progressing strategy implementation led to break-even result during this seasonally weakest quarter. Our comparable operating profit was EUR 1 million on the positive side. That would not be a good result for any other quarter, but for Q1, that's a solid start for the year. This was the third consecutive quarter of comparable operating profit after the impact of the pandemic eased. This was also second quarter in a row when we achieved a positive net result, this time the net result being +EUR 3 million.
The strong demand was reflected in the number of passengers that we carried. That was 2.6 million passengers during the quarter. Our load factors basically normalized to pre-pandemic levels, the Q1 number being 71, sorry, 75%. We operated 80% of our capacity in terms of Great Circle ASKs as our own scheduled flights. Then when we calculate in the wet lease operations for our partners, that number is extended to 86%. Our unit revenues RASK developed strongly during the quarter, with +30% improvement in comparison to Q1 2019. This is reflecting on one hand the strong demand, but also the numerous initiatives that we have been taking during the past years to improve our commercial performance.
One of them being the dynamic continuous pricing that we have been taking into use in our revenue management as one of the first airlines in the world. The transformation that has taken place in our distribution as increasing the share of direct distribution to 65% and in parallel to that as improving and intensifying the digital sales and marketing and the relevance of our offers to customers. We are gradually getting better in terms of ancillary sales and all that goes into this one number, which is the single biggest lever behind the result this quarter.
The customer satisfaction remained at a good level, Net Promoter Score being 42, that edged upwards from last year, where the last year average was at 40 in terms of Net Promoter Score. The Net Promoter Score and customer satisfaction was greatly helped by the on time performance, which was 82% for the quarter, which can be regarded as a good number, remembering that the wintry conditions in Finland in January and February are making the on time performance more challenging during this quarter than during the summer months. After the pandemic and the Russian airspace closure, it is worthwhile to take a bit of perspective into Q1 numbers. There we of course see the sort of heavy drain of the pandemic during the last three years.
When we look back to 2019, which is probably the best comparison year in terms of operating environment, Q1, EBIT, in 2019 was -EUR 16 million, whereas the full year EBIT, for the year 2019 was +EUR 163 million. 2018 was the all-time best year, in the history of Finnair, in the soon 100-year history of Finnair. Us enjoying, you know, upcycle in terms of economy and also, getting new Airbus A350 deliveries and increasing Asian traffic at that time.
This year differs from all the other years in this picture in a sense that Russian airspace has been closed, and that certainly has been increasing our operating costs significantly on the Asian routes. It has been a solid, a good start for the year. We need to remember that the uncertain operating environment persists despite of the strong demand that we are seeing per se. Fuel price, as you know, is still high, and given that there's a war in Europe, the development remains uncertain. There's no end in sight for the Russian airspace closure. High inflation, higher interest rates, all come into this equation.
Of course, we will need to remember that during the double crisis of last three years, Finnair has been accumulating a lot of debt. That means that we will need to stay the course. We will determinedly continue to implement our strategy, both in terms of increasing revenue and in terms of increasing the efficiency, reducing the unit costs of the company. When we look at our individual businesses, Aurinkomatkat, our packaged travel arm, had a strong quarter. Overall, Aurinkomatkat-Suntours, the share of it from total revenue has recovered well from the pandemic. Aurinkomatkat has a excellent customer satisfaction with a Net Promoter Score of 55. During the course of last year, we got the Best Customer Experience award in Finland, all industries, all companies included.
We are indeed seeing a strong demand for the summer in the package travel business clearly, whereas in couple of years ago, there was a discussion of a trend-like weakening of the package travel product prospects. What we see now is that package travel is appealing to customers in the uncertain economic environment. We are also attracting new types of customers for the package travel product, more premium type of leisure travelers. In this environment, Aurinkomatkat has been able to increase its market share. Clearly what we are seeing that based on the way the bookings in Aurinkomatkat are developing, we will be basically selling out our capacity for the summer months. Therefore, for friends and family, it's a good advice to book the summer trips now.
The same applies to the rest of our business. When we look at our ticket sales, first of all, we see our booking curve normalizing. When we look at the sold tickets at the end of March, we see that we have the order book for the summer is notably more full than it was at the same time last year. We see strong demand of travel for the summer months up until end of the summer season in September. Clearly we are looking toward a busy summer season where the capacity constraints of airlines are contributing together with the strong demand to a positive yield environment.
Taking a deeper look at the Q1 numbers, of course, when you compare to Q1 last year, that was still heavily impacted by the pandemic and then the Russian airspace closure, there has been a remarkable shift in terms of the profitability numbers as witnessed by the comparable operating result or the result for the period. As stated, Q1 2019 is a more meaningful comparison in terms of operating environment, and there we see that our revenue increased from that quarter. The same goes for comparable EBITDA as well as for comparable EBIT and net result.
In addition to successful commercial management to boost the revenues, we have been able to proceed with our agenda of reducing unit costs, and our expense management has been successful. Clearly, when sort of reading the numbers and interpreting the numbers, you will need to take into account the fact that the increased flight time to Asia has significantly increased the costs of these routes. Our unit cost decreased, excluding fuel, with 3% when we compare to the same period last year. In terms of cash, our cash flow during the quarter was strong, especially the sales intake for the summer months is visible in the changes in the working capital. During the quarter, we also made a bit of investments.
We bought three narrow body aircraft that we have been having as leased aircraft in our fleet. That is visible in the CapEx part of the cash flow chart. The cash flow and the cash reserves at the end of the quarter were 1.6 billion EUR roughly. When we look at the cash to sales ratio for the past 12 months, we are close to 60% that can be regarded as a strong number. In terms of balance sheet, the strong operating cash flow has contributed to gearing becoming better now at 240 level roughly. Of course, a notable shift from Q1 last year, as stated on the back of the cash flow.
When looking at the equity ratio, the equity ratio decreased with a notch despite of the positive net results, and that was attributable to decline in fuel price, which negatively impacted our fair value reserve. When we dig deeper into the strategy implementation and the progress in strategy implementation during the quarter, we successfully stabilized the new, more balanced network. On the back of that, we have now also optimized our fleet, and we don't see any big changes happening in our fleet from now on. Of course, we will continuously optimize the fleet when it comes to sort of individual tails, but now the big changes have taken place. We also adjusted the delivery schedule during the quarter of our two upcoming Airbus A350s.
The first one of those will be entering the fleet in Q4 2024. The last one we extended a bit until Q2 2026. Those are the changes that took place on the fleet side. Network-wise, we stopped the shortest domestic flights with flight times little above 20 minutes to Tampere and Turku simply because the load factors were around 30% and thereby nowhere near the commercial feasibility. In terms of strengthening unit revenues, I think that the number of 30% improvement in RASK speaks for itself, and I basically touched upon all the measures that we have been doing in that space already.
We will continue with that agenda, and we see that there's further upside to be realized also in terms of unit revenues. In terms of unit cost, during the quarter, we achieved an agreement with cabin crew on new savings. This means that 90% of our employees now have agreed to a savings package with the company. For the remaining 10% of employee groups, we have already implemented alternative savings measures of similar size.
We stopped our in-flight sales, not the food and beverage sales in flight, but other categories like cosmetics, liquor, candy, simply because we did the math and we had seen deteriorating customer demand for these products over the years and then the revenue did not warrant the cost and resource investment to this piece of the operation and then therefore we decided to stop the sales. We also did some changes to our service concepts on our flights. All of these measures are part of the agenda to improve the efficiency of the company and to reduce the unit costs as stated. In terms of sustainability, we purchased so far the biggest individual batch of sustainable aviation fuel from Neste, 750 tons.
While this is a small portion of our total jet fuel consumption, it is still a meaningful step in our long-term journey to scale up sustainable aviation fuel usage. The shortest flight connections to Turku and Tampere replacing them with buses moving forward with intermodality agenda. It has a sustainability angle to it. In terms of guidance, we reiterate that during this year we will be operating between 80%-85% of our capacity measured with ASK, the Great Circle Miles. That will be depending on the development on the Chinese market, as well as potential leases of aircraft and crew to other airlines.
When we look at our booking curve, as stated, we see the strong demand for travel to continue, and especially for the summer period, that will be supporting our revenues. Beyond the summer period, based on booking curve, we still do not have more visibility. Of course, as stated in the operating environment, all of these uncertainties that I listed previously prevail and that we have been repeating in our outlook. Putting all of this together, we estimate that during whole of this year, our revenue as well as profitability comparably, but will significantly improve year-on-year.
At the same time, even though Q1 revenue and Q1 comparable EBIT were better than in 2019, we estimate that the revenue and comparable EBIT will not yet reach the level of 2019. This is especially because the latter half of 2019 was a strong one and therefore a tougher compare. That basically wraps up our outlook and guidance from here onward. We will be, as per usual, updating this in connection to Q2. As stated, solid start for the year. We are clearly progressing according to plan in terms of our strategy implementation. Now when we look into the summer, we are seeing strong demand, and we are getting ready for a busy summer season.
I will stop at that. Thank you.
Thank you, Topi. Now would be a convenient time for any questions you mayf have. Please follow the operator's instructions to present them.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Jaakko Tyrväinen from SEB. Please go ahead.
Good afternoon, gentlemen. It's Jaakko Tyrväinen from SEB. Firstly, congrats on the strong Q1. Happy to see your numbers coming to black territory again. Great performance there. My first question goes to the yield development going forward. If I look at the quarter-on-quarter yield difference in 2018, 2019, we saw that from Q1 to Q2, the yields were always up by few percentage points. Given the current booking visibility that you have, should we expect same kind of a quarter-on-quarter development this year?
Okay. Thank you. Thank you, Jaakko. Thank you first of all for those nice remarks at the start of your comment. When we look at the RASK development, I think that what we have been stating previously is that we are seeing the normal seasonality patterns returning in terms of our business. That is that is visible in the overall booking curve. What we are experiencing currently is that the bookings are coming in on a good rate. There clearly is a strong demand.
Already during Q1 it was visible that the strong demand combined with the revenue management actions that we have been doing as part of our strategy implementation, as well as the capacity constraints that global aviation and European aviation are having, they are contributing to a positive yield environment. As we speak, we are seeing the yields rather to edge upwards rather than anything else reflecting the normal seasonality patterns.
Excellent. Thanks. Very helpful. A bit more on the summer season and perhaps regarding your capacity. In your outlook, you state that you will be operating 80%-85% of 2019 capacity and at the first quarter was 80%. Should we expect the capacity to go towards the upper end of the guidance range towards the year end?
I think first of all it is fair to say that, you know, as Topi said, we do expect normal seasonality. As a result, we will have a busier summer season ahead of us and we are preparing for that, you know, both from capacity, as well as ensuring that we have sufficient personnel to operate that capacity. I think it's fair that we do see a busier summer season ahead here. That's one thing. The second thing to note is that when we talk about capacity now, we talk about it in terms of kind of traditional ASKs measured in a similar way as we've always measured them.
However, we all know that, you know, actual flight, length to many places in Asia is actually, you know, 30%, 35%, 40% longer than, you know, the theoretical ASK that is used in the, in the capacity calculations. As a result of that, we did provide, you know, both in our, quarterly release as well as in the, in the presentation, an approximation of an estimate that, okay, overall we think that we are having, 15% more ASKs if you measure them on actual length of travel. If you use that, then in a way our capacity is actually quite well utilized currently. Because of that it's difficult to get much higher from here.
You know, to your question, summer season at the higher end of that range is a good estimate.
Okay, good. Thanks. On the Asian traffic and the recovering Chinese demand, which is still, if I understood correctly, on a rather early phase, could you remind us how much Chinese travel was as a share of total of your pre-pandemic Asian traffic? Trying to understand the upside potential that still lies in your Asian traffic.
Yeah. That particular number I don't recall from the top of our mind. Perhaps what we can do is that our head of investor relations, Erkka Salonen can, you know, find that number for you and, potentially, either we can come back to that toward the back end of the call or alternatively, Erkka will deliver that number to you via email. When we talk about generally, the Chinese market, first of all it needs to be stated that the opening of China was a surprise I guess to everybody around the year and including the Chinese themselves. Therefore the economy in China on the overall, including travel, has been probably slower to start than many anticipated just based on the headlines.
What we are seeing currently is that the impediments of travel to and from China are gradually being removed. For example, as late as two days ago, the Chinese government sort of removed the PCR test requirement for, from all travelers entering China, and that will now come into force on the 29th of April. We have been just lifting the mask requirement from our Chinese flights. All of these things are important to actually get the travel experience to normalcy and then therefore seeing the demand coming through. Clearly, especially when we are talking about Chinese travel to Europe, there are still quite long queues in terms of passports and visas.
The Chinese travel for the time being is directed to those countries where they don't need the visas like, you know, Thailand and Vietnam and so forth. Eventually when the passport and visa issues are addressed, we think that there will be a significant pent-up demand for traffic to and from China. We are observing the situation closely now, and we are ready to make decisions during upcoming weeks to increase capacity to China. The timing of that discussion is and the timing of that decision is very important for us because as stated we have now successfully implemented our new more geographically balanced network. The routes that we have, we see strong demand for summer. We have deployed basically our capacity.
When we add capacity to China, we will need to make sure that it will be profitable capacity. Of course, the sort of underlying thing is that China is different from the rest of our markets in a sense that there is no level playing field. The Chinese carriers can fly through the Russian airspace, whereas all of the European carriers will need to go around the Russian airspace, that of course is giving them quite a bit of competitive advantage. When we discuss that in more granular fashion, we still think that Europeans, especially flying to China, will be choosing European carriers. For example, it is questionable whether European companies, corporate travelers could fly through Russian airspace with Chinese carriers.
At least that would not be in the spirit of the sanctions. When we look at China, we especially look at increasing frequencies to Shanghai and then potentially reopening Beijing at some point. We will be making those decisions in the next phase during the upcoming weeks.
Okay, good. Thanks. Briefly on cargo situation where the yield is coming down and we are seeing the fuel price sliding all the time on the screen. Should we expect the yield to continue be under pressure going forward?
I think the cargo yields have normalized now from the very high-elevated levels they were at during COVID times. I think it's reasonable to expect that, you know, this is the level of activity and pricing that we will see, you know, clearly, you know, as anything else subject to, you know, what happens to fuel to some extent. Of course, there has been an overall, you know, destocking in many industries which most likely have affected cargo business during the start of the year.
That's of course a situation which cannot, you know, continue and should, you know, normalize the environment to some extent, which again could then maybe have a positive impact on the, on the yields. On the balance, I think, you know, current level of trading is a good proxy for the future.
Good. One more, a bit more technical one. I noticed that your personal costs were or personal cost per employee, were up quite a bit. Any abnormal items in the, in the reported, personal cost number this quarter?
No, I think that in terms of people cost, I think that there would be a couple of things that you need to remember. First of all, when we consider the amount of ASKs and the flight times to Asia, you will need to remember that the actual flight kilometers are different from the Great Circle ASKs, and that therefore the sort of variable e-employee cost related to those flights follows a little bit different pattern than previously. The flight times have increased so much. That's one thing. The other thing is that now we have been starting to recruit pilots.
We are recruiting 80 pilots, and already during the course of six months, we have been investing a bit to pilot training that is visible to some extent in the numbers. Finally, this is also the quarter where we had some STI related costs in the employee costs. I don't know, Kristian, if you want to elaborate.
I think it's fair to say that now when we are seeing, you know, profitability, we are also accruing variable kind of compensation in the normal course, which is of course different than during the COVID times when results didn't justify any variable compensation payments and there were even, you know, periods when no variable compensation was paid to management.
Excellent. Very, very clear. Thank you. That's all from my side.
Ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. Please state your name and company. Please go ahead.
This is Achal from HSBC. First of all, congratulations on such a strong result. Sorry, I was actually dropped off, so kindly excuse me if I ask something which you have already responded. I want to understand a few things. First of all, I'm not sure if you have discussed the profitability or performance of your Qatar business, and if you could please give us a bit of color on that'd be helpful.
Yes. Thank you. This question has not been discussed previously. As stated currently, based on the commercial cooperation that we have with Qatar Airways, we are operating daily flights from Helsinki, Stockholm, and Copenhagen to Doha. With that, we have been introducing a new traffic category, the Middle East traffic category to our business. Those flights have been starting well. The demand and the performance of those routes have been exceeding our expectations a bit. Those routes are and have been profitable basically from the start.
Right. Sorry, could you please give us a bit more color in terms of, you know, how many aircraft are you flying? What kind of, I mean, do you have any limitations or can you increase number of aircraft? What kind of challenges would you face in case you want to increase the number of aircraft? Would you need to agree with your pilots and all? What is your plan in terms of, I mean, are you still sort of continue want to fly from Helsinki and Stockholm to Doha, or you have plans to connect some other markets to Doha as well?
Well, I mean, first of all, when we look at our fleet, as stated during the quarter, we successfully implemented a geographically more balanced network, which is now stable. That means that we are effectively deploying our capacity. There's a notch of increased utilization that we can take out from our fleet. We don't see any big changes happening in our fleet right now. Of course, we will continuously continue to optimize on tail by tail basis. When we look at then the availability of resources, I mean, if we take the pilot CLAs or the CLAs with any given employee group, there are no constraints for us to increase the number of aircraft.
What we do notice in the market that the availability of aircraft is very tight out there and then that is contributing to the capacity constraints that the industry is experiencing. And then of course there seems to be also a global shortage of pilots especially, and all kinds of crew shortages. Our situation in that one is a little bit better, that for example, now when we opened up the pilot recruitment, recruiting some 80 pilots, we got, I don't know, more than 500 applicants. And that means that in the market of Finland, we have readily available talent pool both for pilot and cabin crew jobs. And that situation is a little bit different in comparison to many other markets, aviation markets in the world.
Maybe just if the question was specifically to the Qatar relationship. We have three planes flying daily, you know, back and forth from Helsinki, Stockholm and Copenhagen to Doha. The majority of the seats are sold in a block to Qatar. They sell them forward, and then we sell a portion of those flights with own tickets. Of course it's a commercial negotiation then with Qatar if we would, you know, both feel that it would make sense to increase the frequencies of these cities or, you know, take the partnership to other cities. These cities are of course, you know, very natural for us to operate from, you know, given the closeness to the Helsinki hub.
Right. Right. No, that's perfect. The other thing I wanted to understand on Asia, I remember you talking about very strong cargo demand, and of course cargo demand was very strong during COVID, and even after COVID. Now the cargo has sort of normalized back. I think your Asian operations were kind of subsidized by the strong cargo. Now given that cargo has normalized, how do you see the sort of profitability on the Asian routes where your flight lengths have increased significantly? I mean, do you still plan to continue in Asia? I know you're growing, but I mean, at what cost?
I mean, are you sort of, is the profitability declining or do you have something else in mind to make these flights profitable? Is it the yield which is, sort of making that operations happen, or profitable? I mean, could you give us a bit more color about on Asia side, please?
If I start on the Asian market generically, then Kristian perhaps you can continue on the cargo topic. When we look at Asian markets excluding China, when we look at Japan, Korea, Hong Kong, Singapore, Thailand, India, all of these markets, we will need to take into consideration that there's a level playing field, in a sense that both European carriers as well as the local carriers flying from those countries to Europe are going around the Russian airspace. That means that all players have been meeting the similar cost increases for those flights. Even though those cost increases have been significant, also the market has adjusted.
The yield levels are significantly up on all of those markets, making the Asian flying profitable in this situation. You need to remember also that in the Asian traffic, Finnair had and still has an established position. We have a number of strengths in the Asian traffic. First of all, we have the brand for providing the Asian network that is known by the customers as well as by travel agents. That's one thing. We have the slots on the mega cities, on the airports of the Asian mega cities like Haneda, Narita, Pudong, and all of these things, all of the airports. Then we have the local partnerships, like with Japan Airlines on the Japanese market in the form of the Siberian Joint Business.
All of these things are accumulating to us having strengths on the Asian flights. That is very visible in the sense that we have been able to keep our market position on the Asian traffic. The whole market has adjusted, and the number of flights has, the capacity has reduced for the Asian market, but we have been able to keep our position. As stated, those yield levels are justifying profitable flying. To sum up, we see growth opportunities in Asia, for profitable flying, going forward. Cargo certainly is part of that equation, and perhaps you, Kristian, continue on that.
Yeah. I think the good thing with the Asian cargo traffic is that, you know, there is a natural flow of product both ways. You know, fresh fish going that way and, you know, high value components coming the other way, if you kind of very simplify it. We do see that traffic flow will continue. It's air cargo relevant, so it's not, there are no alternatives for that. As a result of that, you know, this continues to be an important part of the overall profitability of flying, you know, between Europe and Asia.
Exactly. Perhaps one thing still to add is that, when you look at some of the Asian markets, take Japan as an example. When we look at the traffic that has so far been flying between Japan and Europe, it's heavily dominated by corporate travelers, and basically the first movers of the leisure travelers. The masses in terms of leisure travelers have actually not yet started from Japan. Thereby, I think that in terms of leisure travel, the market in Japan is still recovering, and that represents clearly a potential also going forward. To some extent, this is the case also in some of the other Asian markets.
Right. Sorry, Topi, one thing. I mean, you just, I think you said that generally European passengers prefer to fly with European carriers and not the Chinese ones, and probably that makes sense. Then, I think, you had lot of business from Chinese groups. You know, you used to carry a lot of groups from China and all. Now given that Chinese do have access to Russian and probably they would prefer to fly Chinese, what is the status in that business?
Well, the group travel from China has not yet really started. As stated, it boils down to the passport and visa issues. There's also a very specific sort of an ADS list. It is called an ADS list, where the Chinese government basically lists the countries where group travel is possible. Some of the European countries are not yet on that list. We expect Finland to be included in that list relatively shortly and thereby, I think that what we are seeing now is that also the impediments for group travel are currently gradually being removed.
Yet again, this comes back to the impediments of travel gradually being removed on the Chinese market, and that taking some time, and therefore our hypothesis is that Q3 is the right time to deploy additional capacity on the Chinese market.
Right. Right. Fair enough. Moving to a balance sheet. Basically, I mean, your gearing is still very high. I mean, do you have any plans to sort of do a bit of restructuring or issue fresh equity or whatever it is? Do you think you would actually prefer to wait and let that settle down gradually as the business recovers? What's your plan on the balance sheet side to repair your balance sheet?
While we recognize that the balance sheet needs to be strengthened, so that the company can, down the road, invest, going forward, the current focus is on improving the profitability, and through that, putting ourselves in a stronger position also from a balance sheet point of view.
Is that fair to assume that we should not expect any fresh capital anytime in the near future?
As I said, I think the current focus of management is to improve the profitability of the company. You know, try to execute the business as profitably as possible in this demand environment, which is very, very strong. Through that, put ourselves in a stronger position also from a balance sheet point of view.
Right. Okay. In terms of wet leasing, could you please remind us how many aircraft do you have on wet lease? Do you have any plans to further lease out some of the capacity?
We have currently four narrow body aircraft wet leased to BA for the next 12 months. We started that operation at the end of March. As stated, at this point of time, we are largely deploying our capacity. We stay open to additional wet lease deals as long as they fulfill our commercial and operational criteria. Clearly, I mean, for the network that we are flying with our own capacity as our own scheduled service, we see strong demand. If there would be long wet lease deals available, then we would need to weigh that against the profitability that we are seeing from our own flying.
That is basically our approach to additional wet lease deals.
Right. Fair enough. Also in terms of competitive landscape, could you please give us a bit color in terms of competitive landscape on your North Atlantic operations and the operations within Europe, please?
Well, to start with, we have been finding new travel flows from U.S. to Europe, from U.S. to India, and likewise from India to U.S. via our Helsinki hub. That is sort of a new type of travel flows that we have not had previously. Here, of course, our partnership, especially with BA and American Airlines in the form of Atlantic Joint Business is helping us greatly. When we now look at the development of the Atlantic routes, I mean, the winter months are typically seasonally slower in the North Atlantic traffic. We are now seeing improving demand, yet again reflecting normal seasonality patterns for North Atlantic traffic.
Clearly, the capacity on the Atlantic, and thereby the competitive situation, it still reflects the overall phenomenon that we are seeing in global aviation, that demand is strong at this point of time, and various airlines are somewhat capacity constraints for various reasons. For some, it's about lack of aircraft, for others, it's about lack of pilots or other types of crew or the airports being too congested. This is impacting the competitive landscape on the overall.
Right. Fair enough. Also if you could please give us a bit color about ancillary. Basically you just said that you stopped onboard sale of liquor and all. Does that mean should we expect a bit of a decline in your unit ancillary revenue going ahead?
I think we, you know, ancillary revenue continues to be an important area. You know, it's one category that where you could argue the profitability hasn't been that high to start with that we are now dropping off. Yes, it will be a headwind now when we work through the comparable periods. You know, the attention and activity on driving ancillary business across the board is so strong that I do see that we'll be able to offset that decline by being active in other categories.
As stated
Right. Fair enough.
This is a very big part of our strategy implementation, and our digital sales and marketing capabilities have been greatly improving over the past couple of years. That creates a notably stronger platform for us to sell ancillaries going forward. Now it's a more of a matter for us to find the right offerings to right customers and scale up the sales effort.
Right. Fair enough. Thank you so much. My last question is around your unit cost. Basically, you reported ex-fuel unit cost, a decline of 3%. Just a clarification, is that on the basis of the long flight length, or is that apple-to-apple comparison versus Q1 2019 or Q1 2022?
That 3% that Topi referred to is calculated in a similar way as we've always calculated with the kind of theoretical flight lengths. If you do a calculation based on the adjusted ASKs, so the true length, then the decline of unit cost is approximately 4% against 2019. Then it's of course good to also remind people that during that time period, the cumulative inflation has been north of 15%. Those are maybe, you know, good numbers to have in mind that, you know, CASK on an adjusted basis is down, you know, four points since 2019, and then during that time there was 15% of cumulative inflation.
Sorry, 4% versus 2019. How about versus Q1 last year?
Maybe not the relevant compare, I would say, given the adjusted calculation. That's why I wanted to give you the 19 number.
Okay. Perfect. Thank you so much and wish you good luck for going forward.
Thank you. Before the next question, I had a quick comment on Jaakko's previous question. Share of mainland China was less than 10% of sales pre-pandemic.
I think that a good addition to that one would be that when we look at our outlook and guidance for this year, it is not in any way meaningfully dependent on the Chinese traffic. As stated, we have implemented our new geographically more balanced network. We are deploying largely our capacity as we speak, and we are seeing good demand to those routes.
The next question comes from Pia Rosqvist-Heinsalmi from Carnegie Investment Bank. Please go ahead.
Yeah. Hi, this is Pia Rosqvist calling from Carnegie. Congratulations, Topi and Kristian and the whole Finnair team to the strong start of this year. Hey, I got a few short questions if I may. Firstly, postponing the delivery of the A350 to 2026, I think it was. Are there any meaningful costs related to this postponement?
First of all, thank you for the congratulations. No, I wouldn't say so. I mean, of course, there's always a bit of cost associated with a prolongation, but I would not characterize that as meaningful.
Okay. Thank you. Then maybe to a question which was discussed in conjunction with the Q4 results. With regards to the hybrid bond, any news, any light you want to share? Do you intend to redeem this hybrid bond in June to avoid the step up?
I think we've said all along that, you know, when the time is right, we'll make decisions, then we'll communicate. We are now kind of accumulating information to be able to make the right decision. You know, the same facts are true. You know, capital is important during a turnaround period. You know, the company continues to have a strong liquidity position, particularly after a strong cash flow period in Q1. You know, those are factors that we'll take into account when making the decision.
Okay. Thank you. Is there any light you can shed on the expected quarterly development now towards your profitability target of exceeding 5% on EBIT by mid-2024, please?
We haven't provided any guidance for on a quarterly basis. The only thing we've said is that, you know, we do see that we've entered into a more normal seasonality pattern now. At the same time, you know, we are operating in a strong demand environment which will continue at least over the summer period. At the same time, we also understand that we will need to continue our strategy implementation to ensure that the company is also profitable in a more normal demand environment, which will come at some point.
I think those are maybe the only comments that I'll make and you'll have to then make your judgment based on that in terms of what is a reasonable, you know, quarterly progression to expect from here to mid 2024.
Perhaps just to add to that, I mean, almost needless to say, but in our outlook and guidance, we are saying that there will be a significant improvement of both revenue and profitability during the course of this year. Even though Q1 was better than Q1 2019 in terms of revenue and profitability, we still don't think that the full year revenue and profitability will yet not reach 2019 levels. In 2019, the second half was strong, so it's a tougher compare, especially Q4.
Right. Clear. Thank you. Then two more questions. One is, I think I'll start by saying it's clear that your focus is strongly on restoring profitability. Looking ahead and looking beyond now 2024, have you started or when do you expect to start preparing for a renewal of your narrow body fleet?
The renewal of narrow body fleet is not actual right now. Our sole focus, to your point, is restoring profitability and reaching pre-pandemic levels of profitability by mid-2024 onwards. That 5% of EBIT is important in a sense, as stated even with a more normal demand environment, for us to restore our investment capability. That investment capability will eventually be needed for the narrow body renewal. We are quite happy with our narrow body fleet right now. It's very reliable technology. For example, we have altogether avoided the engine issues that so many other airlines have with the new engines, new technology engines, and the higher maintenance costs associated. Therefore, right now, the narrow body fleet is serving our purpose in a good way.
At the same time, we acknowledge that in some years we will need to start the renewal and that certainly will be part of our updates, going forward.
Okay. Thank you. My final question is with regards to the decisions or the laws adopted by the European Commission yesterday with the target and part of the Fit for 55 package and the climate-related climate action. My question is what impact do you expect for Finnair, and are you ready and capable and able to meet these requirements?
Well, first of all, I mean, the EU decision that came during this week, that turned out to be actually little bit better than we expected. For example, the wider raw material base being accepted for biofuels and those kinds of synthetic fuels being also accepted where the electricity source was nuclear. I think that these are good developments, common sense developments, in terms of in terms of regulation vis-a-vis what was expected. When we come back to the sort of bigger picture of what will be the impact, to start with, I think that we all need to remember that the supply of sustainable aviation fuel simply is not there.
Even if airlines would want to buy significantly more sustainable aviation fuel, they could not find it from the market. We understand that the regulation is needed in order to create the kind of demand environment for SAF producers that they can invest in scaling up the production. Scaling up the production is the core thing in all of this. When we look at the regulation by and large, it of course will be increasing the costs of aviation. The profitability of airlines is not of the sort that airlines could be absorbing the cost. Any additional cost from decarbonizing aviation will eventually be transferred to ticket prices. This is how we are seeing it from here onwards.
Okay. Thank you. That's all for me.
It would seem that we have no further questions. Many thanks for all the excellent questions and joining the call. Just a quick note that we're traveling to London with Kristian on tenth of May. If you are interested in scheduling a meeting with us, please contact me or Carnegie Finland. Thanks a lot, and have a great day.
Thank you.
Thank you. Bye-bye.