Good afternoon, ladies and gentlemen. I'm Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you all to this Finnair's third quarter 2023 earnings call. I have here with me Finnair's CEO, Mr. Topi Manner, and he is joined by our CFO, Mr. Kristian Pullola, for the Q&A session. I will now turn this call over to you, Topi. Please, go ahead.
Thank you, Erkka, and good afternoon, everybody. And thank you for joining this call today. So, the main headline for our Q3 was that we experienced strong growth and profitability in the busiest quarter of the year. And now we are getting ready for our extraordinary general meeting this Friday, and the rights issue that we are proposing for the EGM is the next logical step in our strategy implementation. So we have a busy summer season behind us, and Q3 indeed was operationally as well as commercially strong for us. We experienced double-digit revenue growth when we compare to Q3 last year, 13.7%, to be exact.
The comparable EBIT landed at EUR 94 million, operating margin being 11.5%, and this was despite the fact that the fuel price increased toward the end of the quarter. This was the fifth consecutive quarter of positive comparable operating result for us, and that is a testament of our successful strategy implementation. We were yet again successful in our revenue optimization, in our sales efforts, in our revenue management. Ancillary sales increased, but also the cost efficiency measures that we have been taking are visible in terms of declining CASK. The net result for the quarter was also positive, this time EUR 53 million, and that was for the fourth consecutive quarter.
Number of passengers during the quarter was 3 million, and the capacity that we flew in terms of ASK was 77% in comparison to Q3 2019. And this number is including the wet lease operations that we are currently flying, especially to British Airways. The unit revenues RASK increased 28% compared to pre-pandemic, pre-pandemic levels, and here the revenue optimization measures are very visible. Load factor landed at 81%, and our on-time performance was 82%. And after the pandemic, we have been one of the most punctual and reliable airlines in Europe, and that certainly was the case for Q3 as well. We are putting a lot of focus on customer experience these days.
During the quarter, we announced renewal of our Finnair Plus program, moving to a new spend-based platform, introducing new membership benefits for our tier customers, and then adopting Avios as the new loyalty currency. This will take effect at the start of the next year. With Avios adoption, we will be creating a lot of new opportunities for our customers to earn and burn Avios points, our loyalty points. That we estimate is certainly a welcome change for our customers in Finland, but especially internationally, as 50% of our customers are international customers, and we also see opportunities in expanding our international customer base. The new Schengen Lounge investment is part of our Finnair Plus program renewal, and that new lounge will be opening during summer of 2024.
We also recently received a five-star rating from APEX, based on the customer feedback that they have been, they have been receiving. We see continued growth in our business, especially toward the next summer, and for that purpose, we are recruiting now new cabin crew members and gate service agents, for the needs of this increasing, increasing traffic. We have been receiving thousands of applications for the little bit more than 200 jobs that we have been posting open, and that is clear evidence of Finnair being an attractive employer these days. Also, our investments to new cabins continue. We have been executing on our wide-body cabin renewal for a while, and at this point of time, 21 out of our 25 wide bodies have been refurbished.
The feedback to the new Business Class, the AirLounge seat, as well as the new Premium Economy and the refreshed Economy, has been overwhelmingly positive from our customers. When we compare the new cabins, the routes where we have the new cabins vis-a-vis the routes where we fly with the old cabins, there is a clear difference in terms of customer satisfaction in favor of the new cabins. We continue these cabin investments, and today we have announced that we will be renewing the cabins of all of our Embraer fleet, the regional aircraft, altogether 12 aircraft that we have in our fleet. Aurinkomatkat, our package holiday arm, is delivering well. Delivering well in terms of financial results, and delivering well in terms of customer satisfaction.
They have a record high Net Promoter Score as we speak, and that is 66, which is a very high number in comparison to any given company on the travel industry. So, toward the end of the quarter, we started to see increasing jet fuel price and that was to some extent impacting our numbers. Even with that, the EUR 94 million operating result is a strong number and tells a convincing story about the underlying development that we have in terms of implementing our strategy, both in terms of revenue initiatives as well as cost initiatives.
When we compare the current jet fuel price, approximately $1,000 per ton or EUR 1,000 per ton, then when we look at the longer history of jet fuel price development, we clearly see that we are in a high jet fuel environment as we speak. The revenue for the quarter landed at EUR 817 million, so there was almost EUR 100 million growth when compared with Q3 last year. The comparable operating result indeed was the mentioned EUR 94 million, a notable pickup from the operating result of last year. With the financial expenses, with the taxes, our result for the period was EUR 52 million. I think that when we look at the commercial performance during the quarter, we can say that that really was strong.
The measures that we have been doing in terms of changing our distribution, in terms of being better at digital sales and marketing, driving sales to our own channels, Finnair.com, are clearly bearing fruit, big time, as we speak. Also, we have been changing our offering and, those changes have been contributing to increase in our ancillary sales. That all are contributing to revenue growth of 13.7%, plus the 28% RASK growth. And this is indeed visible in this picture. So, when we compare to Q3 last year, we see a clear pickup in terms of RASK, and especially when we compare to pre-pandemic levels, there's this clear step change in terms of RASK.
In terms of CASK, we also see trend-like decline on the back of our cost savings measures. There's a little bit of volatility between Q2 and Q3 in this one. Q2 was artificially low in terms of CASK, and then during Q3, there were a bit of one-offs related to maintenance reserves in the CASK figure. So if we even those out, then we are seeing a more linear trend-like decrease in CASK that we would expect to continue during the quarters to come, as we haven't yet seen all of our cost initiatives materializing. So when we look at our business on rolling 12-month basis, the comparable EBIT for the last 12 months has been EUR 179 million.
On the back of that, we are able to specify our operating result range for this calendar year. We expect the operating result to land between the bracket of EUR 160 million-EUR 200 million, the midpoint there being the EUR 180 million. During the past 12 months, our revenue has been EUR 2.95 billion, and we expect the revenue during this calendar year to land between EUR 2.9 billion-EUR 3.1 billion. When we look at our cash situation, we see strong operating cash flow during the quarter, and also it is important to note that we paid back the EUR 200 million hybrid bond, including the interests.
So we started the quarter with a little bit more than EUR 1.5 billion in our coffers. The operating cash flow, EBITDA plus the net working capital change, amounted to a positive cash flow of EUR 95 million. Indeed, the hybrid bond repayment plus the interest was EUR 220 million altogether. So at the end of the quarter, we had 1.3 billion, a bit more than EUR 1.3 billion of cash at hand. And the cash to sales ratio was 46%, a very strong number.
When we look at the balance sheet, there, of course, has been quite a bit of movement in the balance sheet, but if we compare with Q3 last year, our equity ratio has increased from 8.3% to 11.5%, despite the fact that we paid back the hybrid bond. And now, when we are in the middle of executing a rights issue, we impact that after successful rights issue, our equity ratio will be landing around 15%, taking into account that we will be paying back the EUR 400 million capital loan that is being granted by the State of Finland. Also, the gearing has clearly decreased between the years.
Now, after the rights issue, we expect that the gearing will land around 150, which is a healthy number for going forward. We updated our strategy during the summer, after the Q2, and now when announcing the rights issue, we included couple of additional financial targets. The bottom line of all of this is that with the six strategic themes that, that we have, and with the disciplined, determined implementation of those, we expect to achieve a comparable operating profit margin of 6% by the end of 2025, even if the demand picture would be bit more subdued than it is today, and even if there would be increasing, sustainability costs going forward.
In terms of sustainability, we are indeed in the middle of adopting the so-called Science Based Targets initiative, and we expect those targets to be verified at the start of the year. We are keeping our long-term target of reaching carbon neutrality by 2045. Related to balance sheet, in connection to the rights issue announcement, we introduced two new targets. The first one being that we aim to achieve net debt of 1-2x the comparable EBITDA by the end of 2025. We also want to restore our ability for shareholder distributions from 2025 onwards, meaning that we would be paying these dividends based on the result of full year of 2024. Indeed, the plan with the rights issue is to build a sustainable balance sheet.
By paying back the EUR 400 million of capital loan, we will, alone with that move, reduce our financing costs with EUR 54 million. That will be a significant relief in terms of our profitability and net result going forward. The rights issue will reinstate our ability to do shareholder distributions, and it is very, very important to support our continued strategy implementation, especially over the longer run, when we know that we need to make investments to new fleet, most notably the narrow body, a narrow body fleet. And we expect those investments to gradually materialize over time during the next, next couple of years, so that the annual CapEx would be remaining in check.
The transaction is fully supported by our main shareholders, approximately 60% of the shareholders, the State of Finland, key Finnish pension funds, like Varma, Ilmarinen, and Elo, are supporting the rights issue, and the same applies to the arranging banks, Nordea and Deutsche Bank, who have been underwriting the rights issue. The proposal of the rights issue will be put forward to the extraordinary general meeting that we will be having this Friday on the twenty-seventh of October. And that brings me to the guidance. We are reiterating our capacity guidance, estimating that during this year, we will be operating an average capacity of 80%-85% ASKs, measured in comparison to 2019 level. And this, this number includes the wet leases to other airlines.
We specify our previous guidance for the full year revenue, and as stated, we estimate that to land within the range of EUR 2.9 billion-EUR 3.1 billion. The operating result, in turn, for the full year, we expect to be in the range of EUR 160 million-EUR 200 million. In terms of risks, as we have been stating previously, we see that the specific risks related to our operating environment, namely the pandemic impacts, have faded, and also the market on the overall has adjusted to the closure of Russian airspace. So those risks do not apply anymore. Instead, we have the generic risks of inflation, the higher interest rate levels, and the geopolitical risks, and now most recently, also the Middle Eastern situation.
So that brings me to the end of the presentation. We are also getting ready to celebrate the 100th birthday of Finnair, that will be taking place next week. The official day is on the first of November. It is a big thing for us. An airline turning 100 years is not self-evident, especially after all of the crisis and the hardship that the industry has been going through during the past couple of years. Finnair is today the sixth oldest operating airline in the world, and indeed, because of that, it feels very, very good and timely that we can present strong growth and strong profitability from the last quarter, just in time for our 100-year celebrations.
So I will stop at this, and then I guess we will be opening for questions, Erkka.
Correct. Thank you, Topi. Indeed, now would be a perfect time for any questions you may have. Please follow the operator's instructions to present them.
If you wish to ask a question, please dial 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.
Yes, good afternoon, gentlemen. It's Jaakko Tyrväinen from SEB. I would go back to your, Topi, to your comments when talking about the recruitment. You noted that you are seeing continuing growth going forward. Could you shed some light where do you see this growth coming from geographically, for example? And then could you give any indication on the capacity plan for 2024?
Yes. Thank you, Jaakko. So, we see especially growth opportunities in our European short-haul business, so in the narrow body space. And, that is why we are getting ready to call back those wet leased aircraft that we currently have with British Airways, and that wet lease period is ending at the end of March next year. So that's one part of the growth plan. And then secondly, we estimate that by organizing quicker turnarounds for our planes, by rearranging some of our network and scheduling, we can increase the narrow-body aircraft utilization and thereby increase the capacity in terms of number of flights, as well as ASKs, in the European short-haul business.
Indeed, for those purposes, we need more staff and then we have been recruiting pilots during the summertime, and now we are recruiting cabin crew as well as gate service agents. All in all, we expect that we can grow in line with the market during the coming period. But we also need to take into consideration that in the wide body space, we will have one new Airbus A350 coming up at the end of 2024, which creates possibilities for us to increase the long-haul flights. China is a possibility in that respect, and then the second and final Airbus A350 is coming and joining our fleet in Q2 2026.
Okay, great. Thanks. Then, regarding the market, and you stated that you were able to grow in line with the market, but are you seeing any changes in the competitive environment, in the Helsinki-Vantaa hub, looking towards 2024? And, if you have any initial thoughts on the SAS bankruptcy outcome, with closer cooperation with Air France, with KLM going forward, that would be very, very nice to hear.
Of course, we are observing the market very closely, and we are also observing the sort of network announcements and the schedule announcements of our competitors in the Helsinki hub very, very closely. The observation now for the next summer seems to be that we do not see any material changes in the capacity, at least as of now. Typically what happens when the fuel price increases on the market, then that introduces a bit of prudence for airlines to allocate new capacity to new markets. I think that in that sense, what we are seeing is the status quo to prevail.
When it comes to SAS, and Air France-KLM taking a share of SAS and SAS moving into SkyTeam, I mean, we see that the longer term impact of that will most likely be somewhat neutral to our business. I mean, SAS obviously has been part of the Star Alliance, and in comparison, Star Alliance probably is a bit stronger alliance in Europe than SkyTeam. So, that's at least one sort of inroad and one lens to look at the Air France-KLM, SAS move.
And then the second one to keep in mind is that this transaction and the whole bankruptcy process that SAS is currently under is a complicated process, and not everything is settled yet, including what will be the treatment of the loyal customers of SAS, and what will be the benefits that they will be getting going forward. So, of course, we are looking into and observing the competitive landscape of whether there would be sort of shorter term, smaller tactical opportunities. This is normal course of business for any given airline. But when we take a bit more strategic view into this one, then I think that the significance of the Air France-KLM move in Europe is that clearly the consolidation is being accelerated in European landscape.
And all of the three major network airlines, IAG, Lufthansa, and Air France- KLM, are currently active in the M&A space. Lufthansa made the first move with ITA. IAG is currently aiming to complete the Air Europa transaction, and now Air France- KLM made the move with, with SAS. We know that, there's a process ongoing with TAP, TAP Portugal. So clearly, clearly, the consolidation has been speeding up in the European aviation. And I think that Europe, as such, will be taking steps toward what we have previously seen in North America in terms of consolidation.
Great. That's very interesting. Thanks. My final one goes to the ticket liabilities, which were up some 7% year-over-year in the end of Q3. Is this a good assumption for Q4 growth? Perhaps following up here, what is the kind of a booking curve? Is it a similar pattern versus the situation a year ago or could you give any light on that one?
No. So again, I think we are seeing... So first of all, we are seeing healthy cash flow in the business. I think with the benefit of hindsight, the heading of this report should actually have been strong growth, profitability, and cash flow. So that's a strong stronghold currently. In general, we are seeing, you know, good demand in the business, and people are, you know, buying early, securing their travel, particularly on the Aurinkomatkat side. That is visible. So in that sense, kind of booking curves going into winter season look good.
So if you think about them from a working capital point of view, I would see, you know, similar performance as last year as a good starting point, you know, even maybe we can do even better, as we also have a healthier financial position to work with.
Okay. I think that's all from my side. Thank you.
The next question comes from Joonas Ilvonen, from Evli. Please go ahead.
Hi, it's Joonas. You already touched upon the volumes going forward, but what about in terms of unit yields? I mean, considering this recent increase in fuel prices, do you see though those increases could still continue to push ticket prices up, or should we maybe expect more like rather, say, stable unit yield development going forward? So what's your feel on these issues going towards next year?
Yeah, I would sort of divide my answer to two parts. So first of all, I mean, if we look at the RASK, then we need to acknowledge that there is normal seasonality in the RASK curve, and you will need to take that into consideration, the summer and winter seasons typically being different in this respect. So putting that aside, then I think that when we look at the impact of the higher fuel environment in general, I mean, first thing to note, of course, is that we are 50% hedged for the next six months. That goes without saying.
Then, you know, to your question of whether we can see further increases in the fares, during the past 15 months or so, we have seen not only for Finnair but in European and global aviation, that airlines have been able to price in the higher cost of fuel and higher cost of various other cost items, on the back of the inflation. And the capacity bottlenecks that exist in the industry, lack of aircraft, lack of pilots, lack of spare parts, they will be helping in this respect.
Typically, it takes a while before significant jet fuel prices can be priced in, but we definitely think that we have not hit the ceiling in terms of fares, if the jet fuel prices continue to stay higher for a prolonged period of time. So that goes for the revenue side of things. And then when you look at our profitability outlook, then I would also like to point out that we have been implementing cost measures in very determined fashion during the past couple of years and also during the past 12 months, and they are visible in the results that we are delivering.
We still have things in the pipeline, the kind of things that we have implemented, but the kind of things that have not materialized yet fully, in our numbers. So, so therefore, we also expect to see a trend-like decrease in CASK going forward.
By that, do you mean, like, in terms of per seat, or, like, also in terms of absolute operating expenditure levels?
I was referring to CASK, so that would be, you know-
Yeah. Yeah
... per available seat kilometers, so unit costs.
Yeah. Yeah. So my feeling is that on an absolute operating Europe level, operating expenditures are maybe rather, rather stable going forward.
Yeah. I mean, as you well know, I mean, that's also a factor of the growth that we will be seeing going forward.
Yeah. Yeah, sure. Maybe another question. I mean, I'm not sure what, and you said about Q4 bottom line. I mean, you were able to narrow your guidance a bit, but of course, it's still quite wide for one Q. I mean, the lower limit would mean that you make, like, a zero EBIT, but is it just related mainly to... And I understand that you don't want to narrow results too much at this point. Is it mainly related to this fuel price environment, or do you see other some other major issues that could-
So-
... impact Q4?
So first of all, the guidance is provided on the basis of the current fuel price. And yes, you're right, we are allowing ourselves, you know, some volatility here to avoid a need to come out early. So in that sense, you know, use the midpoint as our way of trying to communicate to you where we think we'll land. And of course, you know, we'll then try to overachieve that by good management of the business, you know, continuing to drive the momentum that we have from an execution point of view. And clearly, there is an impact coming from the latest development in the fuel price.
You know, for Q3, we would have, we would have been significantly above 2019 profit levels without the recent increase in fuel price. And when it comes to full year, it's fair to say that we would be operating at above the earlier higher end of the guidance range without the fuel price increases. But now the fuel price is what it is, and we were still able to confirm the earlier guidance. And I think that is actually showing the size, the execution that we've had during the last quarter. The fact that we are in this fuel environment, confirming the same midpoint as we set out after Q2.
So maybe that's kind of giving you some color on how we look at the, you know, Q4.
All right. Thanks very much. That's all for me.
The next question comes from Pia Rosqvist, from Carnegie Investment Bank. Please go ahead.
Hi, this is Pia Rosqvist from Carnegie. I've got one question relating to your maintenance CapEx guidance, which you say is EUR 80 million - EUR 100 million. Can you clarify if this level includes the investment of renewing the Embraer's aircraft fleet?
It does. It again, I think, you know, that will be a program that we've now launched and that will fit in within that envelope. And that's, you know, that's the fact.
All right. That's all for me. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
As there are no further questions, we can conclude the call. Many thanks for all the questions and joining the call. We wish you a nice day.
Thank you very much for participating.
Thank you.
Bye-bye.