Good day, ladies and gentlemen. I am Erkka Salonen from Finnair IR, and it's my pleasure to welcome you all to this Finnair second quarter and half year 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. Now I will turn this call over to Topi Manner. Please, Topi.
Thank you, Erkka, and hello everybody also on my behalf, and welcome to this earnings call. Q2 in Finnair, as in so many other airlines out there globally, was characterized by one thing only, and that was the COVID-19, and that almost grounded our traffic to a halt. But now, since 1 July, the gradual ramp-up has begun and will commence during Q3. The early indications of demand are as we have expected them to be during the weeks of July. So just as a quick flashback and a reminder of Q2, I think that the picture on the right-hand side of the slide basically tells it all.
It describes the available seat kilometers per day during the beginning of the year and basically illustrates how violently we were forced to bring down our traffic during the latter part of March on the back of the border closures and travel restrictions and basically during Q2, Finnair has been only operating the minimum connections that are critical for Finland and only operating 3% of our capacity in comparison to the previous year and this is, of course, basically with one-to-one correlation reflected in our passenger numbers. During the Q2, we only flew a couple of individual flights to Asia and to North America. Cargo business was the bright spot business-wise for us during the Q2.
The cargo business actually amounted to as much as 70% of our Q2 revenue, and especially in May, we experienced high cargo prices per tonne and strong demand, which was really related to the pandemic as such. So during the Q2, in terms of cargo, we carried a lot of medical supplies, facial masks, other protective equipment, also corona tests, and therefore the cargo traffic served a very, very important societal purpose in handling the pandemic. We flew 602 one-way cargo only flights mainly to Asia, and our Airbus A350 equipment really showed its worth also as a cargo carrier during this time. We also modified two Airbus A330s, taking the seats out from those two aircraft, and those two aircraft flew something like 80 one-way flights during the course of May and June.
What needs to be stated about the cargo business is that, first of all, our people in cargo, our people in operations, also the pilots that made these flights happen, did really well under these very hardest of circumstances. I think that Finnair Cargo has been winning a lot of positive brand halo and winning new customer relationships as well, and therefore creating a better platform for future growth. The cargo business also will be greatly supportive for us to open long-haul flights now in July and during weeks and months to come. In connection to Q1 report, we estimated that our daily operating loss during Q2 will be approximately EUR 2 million per day. Mathematically, that would be amounting to EUR 182 million operating loss. The actual figure landed at EUR 174 million operating loss.
Broadly in line with the guidance, the slight positive deviation is attributable to cargo, as I just explained. The loss, of course, is heavy, and it's a major blow, a tough one to carry. The revenue decreased with more than 90% during this time, and operating costs with 66%. In terms of operating costs, we reduced approximately EUR 500 million of costs during the quarter, during the 91 days. That figure basically tells that we have not been sitting idle in terms of costs. We have been basically taking all of the cost euros out that we possibly can, and thereby minimizing the operating loss that is, under these circumstances, is bound to be a heavy loss. Net Promoter Score, customer satisfaction, developed well during the quarter, landed at 40.
So that basically shows that we have been able to take care of our customers, our passengers, also during this extraordinary period. But of course, it needs to be stated that the sample size for the customer satisfaction is clearly smaller than usual because we only carried 3% of passengers during the Q2. In terms of customer service, paid refunds and refund processing is the flavor of the day. Since March, we have been canceling a lot of flights. In May, we also introduced a new traffic program that goes up until the end of March next year. And in doing so, we have adopted a different approach than many other airlines out there in Europe. So we only have those flights in our schedule that we intend to fly. And this, in turn, has generated more refund requests for us.
The whole load of refunds for individual passengers amounts to approximately 1 million passengers. We have been increasing our resources handling the refunds significantly. We have been doing software programming, software robots to optimize part of the refund handling. And with that, we have been able to handle two-thirds of the refunds for 650,000 passengers, paying EUR 270 million to customers. The outstanding amount is still EUR 100 million, and we are working as fast as we possibly can to address that backlog. And then our commitment to customers is that they will get their money back, and we will be also giving cash refunds and not just vouchers, as some of the other airlines would be doing. Fuel costs, of course, decreased during the quarter hand in hand with the volume, and also the fuel price decreased during the quarter.
We were overhedged for the quarter given our hedging policy, and the hedging deviation basically amounted to the full fuel bill during the quarter and even a little bit more than that. As our normal policy has been that we are hedging 75% of our forecasted fuel bill for the next six months. We have been in an overhedged position during the springtime, and now we have been gradually unwinding that overhedged position, and therefore we booked a net financing expense of EUR 29 million in Q2 below EBIT following the IFRS accounting rules, so we booked a similar expense in Q1 that amounted to EUR 55 million, if I recall correctly, and now, with these two bookings, we start to be back to normal in a sense that we have been unwinding the overhedged position.
And of our forecasted traffic for Q3 and onwards, we are within our hedging policy right now, of course, assuming that that forecasted traffic, that forecasted capacity materializes in a planned fashion. And there's, of course, uncertainty related to that given the virus development and given the pace of lifting the travel restrictions. The highlight of the quarter for us, in addition to cargo, was really the successfully executed rights issue that more than restored our equity to pre-pandemic levels. The rights issue was oversubscribed with 110%, and we were very early out in this recapitalization effort in raising equity. We were actually the first airline in Europe, the Middle East, and Africa conducting a rights issue during the pandemic. And now we see that many other airlines have been following suit in terms of also announcing plans to do rights issues.
Also, from a domestic-Finnish point of view, the rights issue was a landmark deal in a sense that it was the biggest rights issue in Finland in five years. More than 98% of our old shareholders decided to exercise their subscription rights. And under these circumstances, that is really a strong vote of confidence toward Finnair and toward the future prospects of Finnair. And because of that, our strong ownership structure remained more or less unchanged, and also the ownership of our main owner, the State of Finland, remained unchanged. So for this, I would really like to say warm thanks to all of our old and new shareholders. This rights issue and the raised equity will play a critical role in rebuilding Finnair and in implementing our long-term strategy of sustainable, profitable growth. So cash is, of course, of key interest to everybody during these times.
We started the quarter with EUR 832 million of cash. There was quite a significant outflow in terms of cash, of course, partially coming from the EBITDA, also from the working capital, where the refunds play a main role, and then also some investment and loan repayments. So the outflow amounted to a little bit more than EUR 570 million during the quarter. We conducted timely and comprehensive financing measures in terms of raising new debt and in terms of raising new equity. We drew EUR 200 million of our EUR 600 million pension premium loan. So EUR 400 million remains undrawn. And we also got part of the proceeds from the rights issue that amounted to EUR 380 million by end of June. And the remainder, the EUR 120 million, we have been now getting to our account in the first weeks of July.
By the end of June, we had cash funds of EUR 850 million. If we look at things as of now, then we would be having EUR 120 million more given the remainder of the rights issue proceeds. This is a very good number to have at this point of time. We have restored our cash reserves to pre-crisis levels. There are not that many airlines in the world who can basically say the same. This is part of our business continuity planning related to the crisis. Also in the case of prolonged COVID-19 situation, or also in the case of even a second wave of the virus, we would be having the cash to withstand that kind of a scenario. This is very, very important to note at this point of time. The rights issue also is clearly visible in the balance sheet.
The equity ratio stood at 25.7 at the end of the quarter. Now, with EUR 120 million more, the equity ratio stands at 28%. We have a healthy balance sheet. Also, the gearing numbers, especially under the circumstances for any given airline, are quite good, also given the fact that we have been raising new interest-bearing debt. As stated, these are strong indications, and I'm sure that when we look at the Q2 results of airlines in Europe as well as worldwide, there are not that many airlines out there who can show similar numbers in terms of equity, in terms of gearing, in terms of cash ratios. Of course, it's not only about raising new debt, and it's not only about raising new equity. We need to adjust our operations to new reality, and that we are certainly doing as we speak.
Earlier during the quarter, we announced our cost savings program, where we are going for permanent cost savings of EUR 80 million with full run rate impact starting from the beginning of 2022. We are turning every possible stone in this respect. We are looking into every cost item that we have, and we have been progressing well. So I think that already in Q2, with the fact that we took EUR 500 million out of the system in 91 days, we actually have shown that we can do this. And therefore, the track record is good. Also, the first steps, the first results in terms of accumulating the EUR 80 million have been encouraging. We have been negotiating rent reduction to our real estate, to our premises. We have been renegotiating some of our IT vendor deals with substantial cost savings.
We have been also renegotiating some of the contracts in our maintenance space. Currently, we are in discussions with all of our unions to generate CLA-related cost savings. We will go through, as stated, every line item in terms of cost during weeks and months to come and proceeding with this program in a very determined fashion. If we look at the traffic recovery and the way it has been starting, we have earlier said, and we reiterate that comment now, that we estimate that the traffic returns to 2019 levels in the case of Finnair in two to three years. In July now, we have been flying 25% of our normal number of flights, those flights that we flew in July last year. This equals to roughly 30 destinations, is about 80-90 flights per day.
We have been now starting also our long-haul operations to Tokyo Narita Airport, to Seoul, to Hong Kong, to Bangkok, and as late as yesterday, we flew the first passenger flight to China since the beginning of February when we suspended our Mainland China traffic, so this is a very important occasion for us. It's only one flight per week at this point of time, but it's a start, and we are fully committed to our Asia strategy. We are fully committed to build our presence on the Chinese market over the long run, and therefore, it's good to be back in China at this point of time. Also, we take note that yesterday, the Finnish government lifted its travel restrictions related to key Asian countries like Japan, South Korea, and Thailand, also related to China.
But as with the rest of the EU, that lifting of travel restrictions related to China is subject to reciprocity. And that is still in the works. We will, in a truly agile and flexible fashion, adjust our traffic schedule, introduce new flights as we see the demand picking up. And that we already have been doing by increasing some of the frequencies, introducing new destinations, and also upgauging our aircraft if needs be. The early indications of demand during July are cautiously encouraging in a sense that we see our bookings gradually building up. And we especially see that on those destinations where the travel restrictions are lifted, then the demand is quick to come back. Our load factors in July seem to land between 55%-60%, depending on how the final days will go.
And that is a notch better than we originally anticipated in terms of load factors. Now, in a couple of days in August, we will be doing the next gradual step in ramping up our flights. We will bring the number of daily flights to approximately 120, introducing more destinations like Dublin, Edinburgh, Rome, and Milan, will also be opened. And then in September, we estimate that the number of daily flights will grow close to 50% of the flights that we had during the same period last year. That would be amounting to something like 190 flights per day. But of course, it needs to be stated that this is subject to the virus development, and it is also subject to travel restrictions being gradually lifted.
We have taken the approach that we only fly the kind of flights that will generate cash to the extent that we are better off flying than we would be not flying at all, so this demand and supply management and disciplined operation in terms of cash is very key to our approach, and then this is something that we have been following in July, and we definitely continue to follow that as our ramp-up proceeds during the fall. One of the biggest focus areas for us currently is to make sure that our customers feel confident and comfortable in flying, and it is clear that health-related safety is really here to stay as a focus area, so health-related safety will be a similar focus area as any other safety-related aspect already has been in the airlines, namely priority number one by a mile.
And we have been introducing a lot of new measures to take care of the health of our passengers. We ask everybody to use facial masks. We do enhanced cleaning at the aircraft. We minimize unnecessary movement and contact in the cabin. And of course, the high-efficiency particulate air filters that the aircraft have make the sort of aircraft a special environment as they change the air in the aircraft every three minutes. So moving on to our outlook and guidance, the visibility to the business is not where it normally is at this present time. So what we are saying in terms of guidance is that we will be ramping up the flights up to 50% based on the current assumption in September. But given the uncertainties related to COVID-19 development and the lift of travel restrictions, we do not give guidance on revenue.
At the same time, we note in our guidance that a ramp-up of an airline is effectively an investment, and there are costs associated with it. And also that Finnair will be running with clearly reduced capacity during Q2. And with that, we estimate that the comparable operating loss in Q3 will be of similar magnitude than we have been seeing during Q2. So I think that this pretty much covers the Q2 for us. And now the focus in our camp is definitely in the ramp-up, in the gradual ramp-up, and boosting and stimulating the demand. And then again, also in the transformational measures to adjust our company to the new reality and also adjust our cost base to the new reality. Thank you.
Thank you, Topi. And now it would be a good time for questions. So please go ahead.
Ladies and gentlemen, if you have a question for the speaker, please press zero one on your telephone keypad. And just as a reminder, that was zero one on your telephone keypad now. We have a question from the line of Jaakko Tyrväinen from SEB. Please go ahead.
Hello, it's Jaakko from SEB. I've got a couple of questions. Thanks for having him. First of all, what are your first indications from the restarted Asian operations? You already mentioned that the load factor for July will be somewhere between 50% and 60%, but could you a bit more specifically elaborate what you are seeing on the Asian routes? And still on the Asian routes, where are you seeing the demand coming from? Is it from Finnish-driven, Europe-driven, or Asian-driven?
Yeah. On Asian long-haul routes, currently, the load factors would be below the average number that I mentioned for the entirety of the July traffic. At the same time, the profitability of the long-haul routes to Asia is greatly supported by the cargo business, and that needs to be really understood in this context, and when it comes to the demand related to Asian long-haul flights, what we are currently seeing is that basically, there's a lot of what I would call a high social need traffic. So basically, expatriates from Asia, European expatriates in Asia coming back to Europe for the summer, and also Chinese people in Europe going back to China or any Asian people in Europe going back to Asian countries for the summer, basically family reunions. And therefore, the balance of traffic is that it comes both from Europe as well as from Asia.
Finland is included as one key market in Europe.
Excellent. Thank you. Still on Asia and the overall market situation there, have you seen rivals ramping up the capacity at the same pace than you are, or are you first mover here?
Yeah, I think that. I mean, of course, it's very early days to say. There are not that many flights to Asia at this point of time, and the picture is basically evolving by the day. By and large, I think that we have been among the first movers to Asia. Definitely, there have been others as well who have been introducing flights from Europe to Asia, the likes of Lufthansa.
Okay. Still on the revenue side, could you also give some kind of an indication on the yields on these few flights that you've been now operating?
Have you been able to get kind of a decent yield from those customers who obviously are flying kind of on a pent-up demand basis? And how has the business traveling—and I'm not meaning business class specifically—but how has the business traveling developed?
Well, I can take the business traveling, and perhaps, Mika, you can take the yield question. But on the business traveling, I think that we need to acknowledge that we have been now effectively operating the new traffic schedule for 24 days. And there are less days for us operating the long-haul business. So it's very, very early days to draw any sort of more far-reaching conclusion. And that certainly goes for the business travel as well. We do know that there is business travel out there. So that's clear.
But more sort of consolidated data, I think that we will need to wait for that one still a bit. Mika, can you take the yield question?
Yes. So on the yield, one needs to remember that we have had the Book with Confidence concept, and our customers have made rebookings on existing bookings. So that's still some part of the booking. So to be frank, we haven't been maximizing the yield. We have been focusing on the passenger numbers. But at the same time, we haven't been selling at discount. So fair assumption is a flattish yield development. But as said, the rebookings kind of is there for our customers. And this distorts the picture a bit.
Okay. Excellent. Thank you. Then if I may, final one from my side.
Given your strong balance sheet currently and the fact that you're planning to renew your narrow-body fleet, what is your understanding of the current aircraft market? Have the market value or market prices of aircraft come down substantially?
I think that the aircraft market is moving to that direction. And then you can debate what is substantial. It is clear that if we look at next 12 months, there are very few airlines out there in the world who either have a need for new aircraft or the financial muscle to acquire new aircraft. Finnair could be potentially one of those very few airlines who have both. And then that is something that we, of course, take note of, and we are keenly observing the development on the aircraft market with the hypothesis that it could be a bit more of a buyer's market during the next period.
But then at the same time, we will also need to proceed with our transformation. We will need to proceed with our cost adjustments, and we will need to also understand the pace of lifting the travel restrictions and the demand coming back. And all of these elements will impact our future decision-making.
Okay. Excellent. Thank you. That's all from my side.
And we have one more question from the line of Achal Kumar from HSBC. Please go ahead.
Yeah. Hi. So first of all, I wanted to understand on the forward bookings trend. So I remember you said the trend has been changed, and now the passengers are booking one week or two weeks in advance. So how do the forward booking trends look like now? And is that becoming a challenge for you to manage your fares and the capacity?
So if you could please guide on that, please.
Yeah. Mika, do you want to take this?
So what I can say about the bookings is that bookings are coming in later than typically. And another thing on the bookings is that, as you know, our network is materially smaller than last year. But during the past, let's say, three weeks or so, we have had quicker intake of bookings than last year at the same time. However, we were able to start the bookings later for the current network. And what I'm saying is that this is what we had if we had the same network last year. So that's what we can see at the moment. And this is valid for July and August.
Another observation is that due to the fact that we were able to start rather late the bookings or that our customers were able to start the booking rather late, so loads are definitely lower than last year at the same time.
But then is that making your fare management also challenging? So do you expect the pressure on the fares due to that also?
Fare management is naturally more difficult in times like this. Because typically, you are able to rely on history much more. And now we rely on the professionalism of the team, and they are adapting to the market conditions. But what the team is saying is that whenever the travel restrictions are lifted, the demand is there. So that's the view. But one needs to remember that typically, the flights are open for sale for more than 360 days prior to departure day.
So that makes it that difficult, so. It's a combination of demand and short booking horizon.
Right. Okay. The other thing I wanted to understand about the cargo trend. So of course, the cargo has been strong during the quarter. But how the trend looks like as the markets are opening? I mean, do you see fall in the cargo traffic and the cargo pricing? So how do you see that? I mean, the trend in the last one week or two weeks, and then how do you see it going forward?
Yeah. I mean, the peak month for cargo in terms of demand and also in terms of prices per ton was May. So we have been coming sort of down from that level a bit. But clearly, demand for cargo is still out there. And then also, the prices are holding up.
So therefore, for the time being, I mean, if we look at the longer trend, the business momentum in cargo business is still clearly above average.
Okay. Right. Right. Coming to the cost, so first of all, what I wanted to understand is the staff cost. So your staff cost in the quarter was down 65%. And I understand previously you said that you have the staff, significant part of employees on the temporary suspension. So what is the status now? Because I understand that for the 90 days, you can put them on the temporary suspension, but then there's a process which you need to follow. So what is the status? How do you see your staff cost evolving? So do you expect your staff cost to remain down 65%-70% for the whole year? And what are the challenges in terms of agreement with the union?
So overall, if you could please talk about the staff cost, that would be really helpful. Thank you.
Yeah. I mean, the temporary layoffs or the furlough schemes in Finland have been helping us in terms of managing the staff cost during the Q2. And those furlough schemes are flexible also in the sense that you can roll them in these kinds of situations. You can roll them far beyond 90 days. So that we are doing also now during the course of the fall. So we will be continuing to furlough people. And then that basically will enable us to adjust the production-related staff cost. I mean, in operations, in flight, in pilots, catering, ground services, and so forth, all the production-related staff costs will be adjusted to the capacity that we fly any given month with the usage of the furlough schemes.
That is a point of flexibility that comes in handy at this point of time. In addition to that, we are discussing with all of our unions of CLA-based cost savings, partially permanent cost savings. Those discussions are proceeding as of now, and they are part of the cost program that we have announced. So part of those EUR 80 million savings should be coming out of these negotiations with the unions. Those discussions, of course, they are never easy, but also probably somewhat understandable in this environment for the employees. The discussions are constructive, and they are proceeding during the course of August.
Right. So basically, we should expect some increase in the staff cost as you increase the size of your operation. Is that correct?
Absolutely. So the staff cost number, of course, will be increasing basically hand in hand with the capacity now when we are ramping up the business. And then on the fixed cost side, on the overhead side, there will be also some increase that will be related to us basically starting a more meaningful level of flights in the first place.
Right. Okay. Okay. The other thing I also wanted to understand, if you could please talk a little bit more about your fleet plan. So of course, now you're not operating your full fleet. And you said you'll be operating the fleets on the basis of looking at how beneficial they are in terms of recovering the cash and all those sort of things.
So basically, if you could please talk whatever you can on the fleet plan, are you sort of returning some of the aircraft earlier than planned? So what's going on in terms of deferring your leases and all? So if you could talk a little bit on the fleet plan, that would be helpful. Thank you.
Yeah. I mean, it is clear that during the next period to come, as we are ramping up the business, we will be a smaller airline, and we don't have a need for all of the aircraft that we currently have in our fleet. So we are, of course, analyzing all options. It is clear that there will be a more long-term grounding for some parts of our fleets, some narrow bodies, and some wide bodies.
And then when it comes to sort of lease expiries, returning aircraft, or transactions related to buying or selling aircraft, those are the options that we are analyzing as we speak. So you can rest assured that we are on the ball with this one, but there are no further news to share at this point of time.
Okay. Okay. Sorry, I have two more. I'm really sorry for the long list of questions. So one, I wanted to understand about your cash burn rate per month. So what is the sort of cash burn rate you have at the moment per month? And secondly, I also wanted to understand about the competitive landscape at the moment, given that Norwegian is shrinking and all. So how the competitive landscape looks like for you in Helsinki? Thank you.
I can start from the competitive landscape, and then Mika, if you take the cash question, but the competitive landscape, I mean, yes, indeed. As different airlines are ramping up their capacity, as the Ryanairs of the world are ramping up their capacity, they, of course, first and foremost, focus on their core routes, and then that means that they haven't sort of returned in full to the Finnish market. Norwegian has basically terminated the jobs of their pilots and flying crews in Finland, so that at least means that the start of their Helsinki base or the restart of their Helsinki base is clearly more in the future if it happens at all, and currently, what they are doing is that they are flying some individual flights, I guess, from Oslo with Oslo-based crew, but that is clearly reduced, notably reduced of what it used to be previously. And then the future will tell how that will be developing.
Right. On the cash burn, what we guided is that our operating result will be roughly in line with Q2. So you can estimate a bit from there. Another important cash flow metric is the refunds. We disclosed that there is still EUR 100 million to be refunds or refunds to be paid. And then the rest of the working capital is subject to the ramp-up, speed of the ramp-up. So if it's deeper, so then it will be positive in terms of cash for us. If it's flat, it's kind of neutral. So that's how you can evaluate our cash burn.
Okay. Thank you so much. Thank you so much. Good luck.
Thank you.
Good question.
As there are no further questions, I'll hand it back to the speakers.
Okay. Thanks for the questions. I guess we are going to wrap up this call. Thanks everyone for participating in the call.
Thank you, everybody. See you next time. Bye-bye.