Good day, ladies and gentlemen. Welcome to the Finnair's Quarter Two Results webcast. Today's webcast is being recorded. At this time, I would like to turn it over to Ms. Mari Reponen. Please go ahead, madam.
Thank you. Good day, ladies and gentlemen. My name is Mari Reponen. I'm from Finnair IR, it's my pleasure to welcome you to our Q2 results call. I have here with me our CEO, Pekka Vauramo, and our CFO, Pekka Vähähyyppä, they will go through the results and financials in more detail. Now over to you, Pekka.
Okay. Thank you, Mari. I'm Pekka Vauramo. Good afternoon, everyone. Quarter two, we continued to execute our growth strategy, we are happy to state that our results were on record-high level for quarter two. On page two, when we look at the numbers, our revenues grew by almost 13%. We added EUR 80 million to our revenue line during Q2 compared to last year. Our operating result was almost 30% higher, almost EUR 48 million. We added about EUR 10 million on our EBIT line. Passenger number grew by 12.6% to 3.5 million during the quarter, and customer satisfaction Net Promoter Score went up by three points from 47- 50. When we look at these numbers, we can be very satisfied with the development during the second quarter of the year.
This second quarter was the 15th quarter of continuous improvement of our result, this gives the rolling 12-month comparable EBIT at the end of each quarter for the past 15 quarters. Each of these bars they do have full 12 months including all the seasons that we do have. The latest one, we added EUR 11 million onto rolling 12 months result, for the first time we broke 7% of EBIT from revenues. We grew very fast. Capacity grew twice as fast as the market grew, that of course brings some challenges, I would say that we overcame those challenges reasonably well. Load factor remained on good level, we are comparing these numbers now to last year quarter two when our load factor improved really nicely. We came a little bit down 1.2% as we will see later on in this presentation.
Considering the growth rate, which was fairly close to 20%, it's a fairly solid load factor performance for us. We broke passenger records, of course, with this growth rate in May and June, and we also broke another record, which was 50,000 passengers in our Helsinki hub during one day. To sort of keep perspective to our growth, just two years ago, we broke first time 40,000 daily passengers, Finnair passengers at Helsinki Airport. Now this year we broke 50,000. That puts our growth into some scale. Ancillary sales and cargo grew not quite at the rate we wanted them to grow. Ancillaries are growing hand in hand with passenger volume, and cargo is a little bit suffering from our move to the new cargo terminal, I'm still happy with the outcome of that project because it's not only new building.
We have new automated terminal. We have new ERP there. We've added new people. We've added new processes. We added a lot of new software there, we are able to currently handle more than the volume in the old terminal, we do have lots of capacity there and room to grow as we learn to use the facility at its full pace and full scale. Good potential for future there. Travel services are developing reasonably well as well. All lines, revenue lines are growing, some concerns in some of them and, of course, to some extent, a concern on ticket revenues because of the load factor and unit revenue development, which was - 4% or -3% excluding currencies during the quarter. That's for the revenue basket. Total revenues developed, I would say, hand in hand with the capacity in all our areas.
Biggest growth in revenues was Asia, more than 20%, I think. 23% is the number that I have somewhere in my mind. North Atlantic and Europe grew by about 10%, domestic was fairly stable or grew by about 5% or 6%. There's a relatively huge unallocated revenue bar as well, this is primarily coming from exchange rate variances, it's, I would say, extraordinarily high. That is EUR 33 million that we have right now. Like I said, revenues grew hand in hand with capacity, no surprises there. Load factor development was overall - 1.2%, we saw 3% growth in North Atlantic and 1% down both in Asia and in Europe, domestic was flat here. Reasonably good performance in the load factor. Moving on to page seven already. Business environment. Sorry, it's page six. Yes.
The business environment, I don't think there's too many news on this one to you, IATA is forecasting, of course, traffic volumes to continue to increase. What's relevant for us is that Asia to Europe is growing very fast, that's the area which covers most of our traffic, in that regard, we are in right place. Fuel price is increasing as we all know, that is a headache for everyone in this business. It is for us as well. We are hedging our fuel, we have not changed our hedging policy. We do follow the same as what we have had over the past five years without any changes. We've seen also some strong movements in currencies that are relevant to our revenues. Japanese yen is now weak as Swedish krona is weaker against euro.
Euro both about 10% from last year's figures, also Chinese renminbi is moving along with the U.S. and maybe even a bit faster at this moment. U.S. is, of course, for us also cost currency and weakening of U.S. is not bad. In fact, I think it's favorable for us because we have more U.S. dollars on cost side than our revenues. Consolidation in Europe continues, I'm sure that with the increasing fuel price, we will see that arena changing sometime in future again. We continue to transform the company to more digital, to more IT savvy. As we speak, with our digital tools, we are able to personalize our service now, we are going through that change in our business class.
Right now we have the SkyG uest tool available on personal smartphones of every cabin crew member currently, there we know the customer profile and can meet and greet and personalize the service according to customers' preferences. We have many other apps that we are using in either in internal or external processes already, now that all the people have access to smartphone or own smartphone in their pocket this will be one way how we make us to provide either better service or report things faster, have better access to the information those contributing to productivity and efficiency and quality and customer experience. We are also adopting a new software for our flight operations to optimize the fuel and the emissions. It will not bring us millions of savings, but I think the emission reduction is the most important thing over there.
Our Finnair app continues to gain popularity to 62% growth rate in active user accounts at this moment. Our outlook, we have already for several years given the profit guidance only after first half, this is what we do at this moment as well. Considering the fuel price increase and some adverse currency development that we have had recently, we are guiding that our profit, our comparable operating result will be broadly in line or the same as the last year's, which was EUR 170.4 million. This is provided that the current fuel price and the current exchange rates continue to be on a level roughly where they are right now.
Our growth estimate for full year, including also the first half of the year, is about 15%, passenger volume will grow in line with that one, whilst revenues will fall a little bit short of that growth rate. Other than those things, our guidance is the same as before. I'll hand it over to our CFO, Pekka.
Thank you. Thank you, Pekka. This is the CFO. Good afternoon to everyone. Moving on to page 10. This summarizes the information which Pekka already told. Begin from the right. We see that our capacity in ASK grew 18%, and we were carrying more than 3.5 million passengers during the quarter. Then due to quite sizable capacity growth, our load factor fell 1.2% behind previous year's level. Looking at the left, we see that all in all, our revenue grew nearly 13% up to EUR 715 million. The biggest relative growth we had in travel services, which grew more than 18%. Passenger revenue up more than 13%, ancillary services 12%, and cargo more than 4%. This converted, like Pekka said in the beginning, the fact that our comparable operating result grew by 28% up to EUR 48 million. Moving on to next page.
Here we see, first of all, the KPIs, which we discussed in the previous slide, but also the bridge from last year's quarterly EBIT to this year's quarterly EBIT in more detail. Here we see that revenue was EUR 82 million up, fuel cost all in all, which we'll just discuss in more detail later, was EUR 31 million more expensive than the year before. We had positive variance versus last year in maintenance that is related to timing of certain maintenance events. I would say that all other cost lines there were pretty much volume-related growth in those. To sum up, our unit cost went down by 5%, and excluding fuel at constant currency, it went down by nearly 10%. Moving on to next page, where we discuss the fuel in more detail.
Last year, in Q1 in the left-hand side, we can see that our fuel bill was EUR 115 million. As we grew our capacity, so it was 18% up, the amount of fuel we burn was of course more, and that increased our cost by EUR 21 million. The price, like I said earlier, was more expensive. The price contributed to the growth, EUR 45 million. Then we had mitigation by currency and hedging, which we do according to our policy. It ended up so that the fuel bill was EUR 145 million. In the right-hand side, we see our hedging policy and hedge ratio, which we have been followed and do follow constantly over the quarters. Right now in the beginning of second half, we had 72% of our fuel hedged.
In the beginning of next year, i.e., first half next year, we have 57% hedged. This describes the hedging policy and status. Moving on to slide 13. Coming back to the passenger revenue here in the left-hand side, we see that the main driver of our passenger revenue growth is the capacity growth that contributed by EUR 87 million, then we had some headwind in load and foreign exchange fees. It ended up that passenger revenue was EUR 577 million. Looking at the other revenue lines, we see that all revenue lines grew. Biggest relative growth, which I mentioned, was in travel services. Moving on to next page. Looking at our balance sheet. All in all, we have currently EUR 3.1 billion capital tied in our business. We have EUR 1.1 billion cash.
When we look at our adjusted gearing on the right-hand side, it went down, and currently it is 60.7%. Equity ratio grew up to nearly 34%. No big changes. We can say that we have a strong balance sheet and a nice cash situation currently. Moving on to next page. Here we see the cash flow development during the quarter. Operating cash flow was EUR 200 million, and investing cash flows were -EUR 33 million. In the financing side, maybe to highlight here that we paid dividend according to AGM's resolution in the month of April, and that was EUR 38 million. Cash funds, including the commercial papers invested in maturities longer than three months, is explained on the right-hand side. All in all, cash funds grew by EUR 133 million and amount to EUR 1.1 billion. Moving on to next page.
Here we see the quarterly revenue development and comparable operating result development. We see on the right-hand side that we have been constantly growing our revenue and that growth has contributed our comparable operating result to grow. We see also here that last year, specifically in Q3, we had a very successful quarter, and also our fourth quarter last year was very successful. When you consider our guidance, you may consider that we may have challenges to continue the growing operating profit for the rest of the year. We will see how the year materializes. Moving on to next page, this is heads up information.
I think it is pretty much the same which we had in the last review, that we are deploying IFRS 16 in the beginning of next year, and it will have a sizable impact in our balance sheet and the way how we report the income statement as well. We will come back to that in more detail closer to the year-end. With these words, I think we ended up our presentation, and we will be happy to take any questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause now for just a moment to allow everyone an opportunity to signal for questions. You may also place a question via Slide Assist. Simply locate the Q&A tab, type in your question, and send your question. Our first question is from Achal Kumar from HSBC. Please go ahead. Your line is now open.
I have a couple of questions, actually. First, on the unit ancillary revenue, I think the total number of passengers were up by almost 13%, and yet your unit ancillary revenue was down 0.6%. Where is the problem? How do you see ancillary revenue going ahead? That is the first question. I had on the slide 12, where you are showing the make of your EBIT from last year to this year. I just want to understand, how much is the Forex impact in that, which I think you've not given? If you could please help on these two questions first.
Yeah. Maybe I'll comment first on the ancillaries. I think seasonally, summer is for us, for some reason, fairly weak for ancillaries. We do have stronger seasons outside the holiday period. That's why we do see a decline there. Our issue in growing, I would more look at the annual level numbers, ancillaries, PAX numbers. The issue that we have is just really the IT integration and development and the speed of it at this moment. We are gaining speed all the time in that one, but we still need to improve that one in order to bring new services into our online.
Could you repeat the second question? I'm not sure if I heard it properly.
On slide 12, where you are showing comparable operating results improved by EUR 10 million, and you are showing the make of how Q2 EBIT, and then Q2 EBIT this year. In that, I think you've not shown any Forex impact. If you could please tell me, how much was the Forex impact in this year's Q2 EBIT?
In slide
12.
12. Yes. Within this, we have not reported it in this slide, in slide 12 separately. We can say that in other expenses, we have the roughly EUR 3 million, one-off expenses in relation to foreign exchange negative foreign exchange differences. Other lines, like we said in fuel in the next slide, we explained that we have currency embedded in those. We could say that this is one-off foreign exchange deviation we have, it is reported in other expenses.
No, sorry. Just to make it clear. In the second quarter, what was the net Forex impact on your EBIT line? In the second quarter.
Sorry.
Yeah.
On the EBIT line, meaning if we account for IFRS 9 and take everything out of the line items?
Everything else is reported below the line. This is Christine Rovelli, sorry.
Sorry, I think your line is not clear. I'm not able to hear what you're saying.
Okay. My question back to you, just so I understand, is are you asking us to reverse the impact of IFRS 9 and take the FX impact out of each individual cost line item above EBIT and give that to you?
No, I'm-
Are you talking about?
No, I'm just.
Otherwise that's below the line.
No, I'm just talking about what was the net Forex impact on your EBIT.
That's why I'm struggling, because in EBIT, they're in the individual cost line items as per IFRS 9. They're all netted in each individual line item. If you're asking us to pull that out, I don't have the information right now, but we can get it to you.
Okay. No, no.
Below the line is different.
Yeah. No, that's fine. In that case, if you could please help us to understand what was the constant currency unit cost in the quarter, change in the unit cost on the constant currency basis, basically.
That is included in the report.
The unit cost for the quarter at constant currency, it's like EUR 4.77, excluding fuel. If you see what we have on Is it slide 12? The current slide, you can see the currency impact on the fuel line. We've broken that out for you. If you want to put fuel back-
Right
you can do it that way.
Right. Okay. Understood. Sorry, coming back to the first question. On the ancillary, you said yes, looking at the full year, we should look at the full year rather than the quarterly, because that's a seasonal thing. How do you see the ancillary revenue going forward for this year, basically?
This year, we continue to grow basically with the PAX volume, the ancillaries, and beyond that one, we can expect also the PAX number to increase, but not in short term.
How do you see the unit ancillary revenue? Do you see that increasing, or do you see that sort of flattish, or how do you see unit ancillary revenue?
Flattish for the remainder of the year, yes.
Right. Sorry, I had one question on the maintenance cost. Maintenance cost in the quarter was down significantly. Do you see that sort of the trend, or was that one-off? How do you see the maintenance cost? Secondly, I wanted to understand about other expenses which increased significantly. What's going on there, please?
Yeah. The maintenance costs, like we wrote in the report, is a positive deviation mainly due to timing of some maintenance events and also, the cost of certain maintenance events was less expensive than we anticipated and what we had last year. So we consider this is a one-off type of report. Other expenses, like I said, that EUR 16 million increase consists of roughly EUR 3 million foreign exchange expenses embedded in the lines, like Christine was also saying. That also includes currently this other expenses line. Certain volume-related costs, meaning, for example, part of crew accommodation costs and other things are there. We had someone earlier today raise this very same question, and we will consider, say, being more transparent in the following reports, maybe starting next year. Because I understand this is a bit currently not very transparent line item.
Okay. Thank you.
We'll take our next question from Andrew Lobbenberg from HSBC. Please go ahead. The line is now open.
Aren't we a lovely team? Hi. Can I ask, not that I'm in a hurry to lose, Pekka, but is there any commentary or any news on the succession planning process? I think the release mentioned increasing competition on Asian routes. Do you see it increasing materially into the second half of the year, or is it stable at the moment or calming? And in the light of the high fuel, how much time are you doing, thinking about adjusting your capacity into the winter? And equally, how flexible do you need to be given that there's a possibility of a consolidation given the high fuel? So how are you thinking about flexibility in the event that any significant airlines who may operate in your area might face changed circumstances? Is that polite enough?
Yes, that's right. Other than the first question, because we do not have any answer to that one at this moment. As you probably knew, I am sure our board would announce it right away if and when they have the name for the next CEO available. What was the second one you said? We have it written down here. Asian increasing competition-
Are you getting work from here or?
There's more and more direct routes being opened from Asia to Europe, and of course, direct routes are competing with us when they are to cities that are relevant, between cities that are relevant to us. I do not see anything too dramatic there, but we see more and more Chinese at least announcing flight openings and route openings. We have heard maybe three different Chinese airline will open Helsinki route. None of them have shown up yet on a day when they were supposed to open, so they all canceled those openings so far. We do hear things like, I think there was even some joint business stories today on the news regarding China Southern. So far, we are not in those discussions ourselves. There are moves that are happening, but nothing dramatic that we would see.
Adjusting for winter, we do have a fairly good seasonality adjustment because right now, when Finland is one of the hottest places, at least in Europe, we have almost what, + 32 to + 33 degrees Celsius. Finns are traveling. They want to go somewhere where it's even warmer if they can find that. Naturally, in wintertime when it's cold here, people like to go where it's warm, and we can then move our capacity quite a much to, for example, places like the Canary Islands and then Thailand. Those are the favorite destinations for Finns. Middle East also like Dubai, very much a favorite destination. That takes some part of it. Of course, with this capacity that we have right now, we have to look for additional measures, and we are not ready to disclose anything about those, but it is a good and valid question from you.
We'll come back to you when we're ready with that one. Flexibility overall, of course, when we look at our fleet plan, the lease periods and then on the other hand, owned fleet, that is a key consideration always when we take a decision whether we own or lease an aircraft or whether we make a sale-leaseback or not on one particular aircraft. Those are the means how we tackle the seasonality and how we tackle also maybe a different seasonality now that we have grown quite a bit at this moment. In the consolidation front, I'm sure that we will see something happening, and I'm not talking about Finnair here. Because of the fuel price, I'm sure that some airlines will have even more difficult than the others to deal with it, and maybe that opens an additional wave of consolidation in Europe.
Thank you. Yeah, no, that all sounds very plausible. Thank you.
Thanks.
Ladies and gentlemen, just as a reminder, please press star one on your telephone keypad to place a question. We will now take a follow-on question from Achal Kumar from HSBC. Please go ahead.
Yeah. Hi. Sorry for asking so many questions. Left out with two questions, actually. One was actually related to RASK on different regions. I was calculating on the sort of the breakup you have given region-wise revenue and ASKs. And then from that, I could calculate that your RASK on Asia was down 7%. On North Atlantic, it was up 3%. Europe was down 5%, and domestic was down 7%. Just want to cross-check. I mean, these numbers sound sensible and how these numbers comparable to on the constant currency basis, how the RASK happened on the constant currency basis. Just want to measure what was the currency impact on these regions.
Second question I had about the trading on Asia, of course, I can understand that the trading on Asia was very strong during the second half of the last year, and particularly in the rest of months for the summer. How do you see that? As I can see that the load factor has declined in the recent months. How do you see the trading on Asia going ahead? Thank you.
If I take the first one, the way how you calculate it is the passenger revenue in material slide six, for example, the revenue which we have in Asia
Yeah.
All these traffic categories, that is the reported revenue. That
Yeah.
corresponds the way how we do it. The unallocated, like Pekka said, that is mainly related to foreign exchange development in accounts receivable. We have accounts receivable related to passenger revenue in our balance sheet. When we have currency deviations there, we do not allocate this currency deviation to the traffic regions, because we don't know which that relates to. Therefore, it is reported as unallocated. Last year when euro in the second quarter was growing stronger, we have had positive, say, unallocated foreign exchange bases.
For example, against U.S. dollar, euro was growing stronger, so we had negative deviations. This year, we have positive deviations because euro was weaker against say, dollar at the end of this quarter. Another line the type of revenue which we report in unallocated is, for example, when someone buys a return ticket and only use one way of the ticket, but he or she has been paying for the both ways. The unused second return ticket we book as unallocated.
They are very many similar lines in that, but the biggest item is coming from this foreign exchange.
Right. I think Sorry?
Okay. Go ahead.
Yeah.
No. Yeah, I understood that. As you referred me to look at slide six, and that's how I was actually calculating the RASK, and which gave me these numbers which I talked about. What I understand is that it looks difficult to have these numbers at the constant currency, right?
Yes. I think it is quite challenging to have them at constant currencies. Yes.
Okay. Understood.
You had a question on trading in Asia as w ell, we still see a very strong trading in Asia. Of course, new route openings from China to Helsinki, to cities, added capacity, bigger planes, they will all compete for those additional passengers that are coming from that region. Other than that, we don't see any major difference in that one. People are still traveling, people are buying tickets, and people like to travel. Of course, there are some concerns in the economy, but so far they haven't translated into different behavior in this regard. Japan, which is still more important for us than on today's volume basis, more important than China. For us, we don't have any other concerns other than currency. Japanese yen is about 10% weaker now than what it was a year ago, and we have added now quite a bit capacity.
Flights are still well profitable, of course, any change in currency exchange rate in the wrong direction means that the profitability is then reduced on those flights. Currency c oncerns in Japan, no other trading concerns at this moment.
Do you see any impact from the trade tension between China and the U.S.?
Not that I could identify at this moment. Of course, at one point, business people will start to question whether there's reason to travel. I think there's, at this moment, more talk than action in that arena still.
Right. Okay. Perfect. Thank you.
Just to advise now that that concludes today's question and answer session. I'll turn the conference back to you for any additional or closing remarks. Thanks.
Okay. Thank you all participants for good questions, and thank you to Pekka and Pekka Vauramo and Christine for the answers. We'd like to hear from you at the latest in connection of our Q3 call.
Thank you. Ladies and gentlemen, that concludes today's webinar. Thank you for your participation. You may now disconnect.