Good day and welcome to Finnair's Q1 results call/webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Mari Reponen. Please go ahead, Ma'am.
Thank you. Good afternoon, ladies and gentlemen. This is Mari Reponen from Finnair IR. It's my pleasure to welcome you all to this Finnair first quarter earnings call. I have here with me our CEO, Pekka Vauramo, and CFO, Pekka Vähähyyppä, and they will be joined for the Q&A by our Treasurer, Kris Rovelli. Now I'd like to turn the call over to Pekka Vauramo.
Well, thank you, Mari, and good afternoon. Welcome to our call. We are very happy to announce our quarter one result, which for the first time in 10 years is positive. A small positive profit, but it's important because our tradition has been on this most difficult quarter to dig ourselves a hole, and then we spend the rest of the year to fill the hole. This time, we don't have the hole to fill. We can start to build the year from much better basis than for many years. We have solid growth of 15% of revenues, slightly higher capacity growth. Passenger numbers grew by 16. This is basically a result of our accelerated growth plan and the execution of that one. I'm moving on to page three already now.
This quarter was 14th consecutive quarter with a profit, with EBIT improvement, and here you can see our track record in that one. Now the latest 12-month rolling EBIT is 6.9% of sales. We are starting to be on the level that we have been targeting for quite some time. Moving on to page four now. Market conditions are favorable. Strong demand in the marketplace. We've been able to firm up our load factor by 1.5% compared with last year Q1. Of course, with this sort of growth rate and the size of our home market, which is relatively small, the growth primarily comes from leisure travel, and there, of course, the yield is not as strong as it would be on business side or on our previous average yield. We were prepared for this one.
This is no surprise, this is of course visible in the yield and RASK decline that we have. Our RASK decline, I think CFO will go through more in detail, but the RASK decline, half of it is explained by the currency movements that we have experienced since last year. Passenger revenue increased in all traffic areas. That was good and positive. Moving on to page six already. Our ancillaries are currently growing. Growth driver is the passenger volume. At this moment, there's very little growth in the ancillary passenger. We will get back into growth mode in that one, but we do have currently some issues with our IT and especially the interfacing between the dot com and our mobile app and our IT system. That sort of slows down the introduction of new ancillary services. Cargo revenue, slight growth, small growth in that one.
We are taking into use our new cargo terminal, which is very advanced, high level of automation. There's been slight delays, but we will recover from that one as we move on. Travel services, our package tour business, our income continues very strongly, 21% above last year in terms of sales. We're also launching Finnair Holidays. That's more for individualized travelers who still want to enjoy the certain benefits of package tours. That's what we call Finnair Holidays, and we have introduced it now in Finland, Sweden, and Estonia. Page seven. We all know IATA forecasts. They are very strong forecast for 2018. Market and all traffic areas, BHS and Europe are growing faster than a year ago. That, of course, shows that we are in the right place and at the right time with our capacity increase.
Some concerns then from the fuel price side, which has increased a bit. We of course do our hedging. We don't see the full impact yet. Of course, at one point we will see this level if the level is sustained where we are currently. Consolidation moves on. We all know these moves. The bigger ones are getting bigger. The smaller ones are either improving like we are improving, or they are going the other way, as many of them have done lately. Of course, these others, they become easy targets of the bigger ones. Our fleet renewal continues. We decided end of last year and during the first quarter to advance deliveries of two Airbus A350s, and we will get additional A350s now or earlier deliveries of A350s now in 2019 and 2020.
We still have order book that runs in 2021 and 2022, with one aircraft delivered until this year. We are currently looking for our narrow body renewal, which is very much in early phases and under sometime in next year, 2019, we have to commit to the next generation fleet for our short-haul traffic. Page nine. Since we are growing, it means that we are recruiting people, we are spending quite a bit effort and time and money also on training and developing our people, developing new ways of working, hoping it's an issue. Still continue recruiting for future growth. Headcount increased by 14.8% from last year. This is not FTEs, this is really headcount. As you might know, the flight crews their sort of working hours, especially the junior ones that start will not have full working weeks and full working months.
You cannot draw that conclusion that our productivity isn't increasing because it is increasing. We continue to develop our services. Unfortunately, our NPS net promoter score declined by 1% from first quarter last year. That is we were already above 50% during last year, but this decline came from a few days when we had during the first quarter and end of last year, when we had really bad weather conditions here. It was a combination of snowstorms and strong winds from a difficult direction for our operation and that, of course, caused a few missed connections, missed luggage connections as well and there was quite a lot of work that we needed to do to recover from the situation.
This is weather-related to more than anything else. We of course hope and we know that summertime will be better and we've taken some learnings now that airport is being expanded. It's partially contributing to the factors, a lot more tarmac in use for parking aircraft and busing passengers and that's causing part of the issues that we had during the winter. We'll recover from that one for next winter and we'll come up with in a much better shape. We made some upgrades in our business class concept. We've introduced new services for families, children, and we are on our long-haul flights with electronic newspapers, meaning that we can offer fresh newspapers and the selection is also expanding rapidly there.
The awards that we've been receiving lately, Best European Airline in China that's the same award or nomination for three consecutive years and we also lately got one from TripAdvisor. Our digitalization transformation continues. Mobile app users grow very strongly, 76% year-over-year only during the first quarter. There's more than 1 million downloads and we have about 2.5 million visitors on our finnair.com site a month. Active users on mobile app is about 240,000, and that also is growing rapidly. Digital channels are very important for all ancillary sales. Sales, as you can see from there, 58% of ancillary revenue comes from digital direct channels. With our growth, we are of course adding flights, adding new destinations and routes. We fly now 97 weekly flights to Asia. We are by number of frequencies, the biggest European airline in Japan this coming summer, second biggest in China.
For a small airline, I think they are quite remarkable numbers. We open a new destination in Nanjing, which is in Shanghai area. Good option, by the way, to travel to Shanghai. It's only just over an hour by a high-speed train from Shanghai, and it takes almost the same time by, in fact, sometimes more from Shanghai Pudong Airport to Shanghai downtown. Time-wise, nearly as close as Pudong Airport. We are serving over 100 destinations in Europe and there's new destinations listed there as well. Moving on, page 13. My last page is the outlook. We don't give any profit guidance at this time of the year. We come back to that one after the second quarter. Our outlook as such is unchanged from end of last year when we first time spoke about or January when we spoke about this one before.
Our capacity increase will be 15%, maybe slightly more than that. Most of the growth, in fact, is coming during the first half, and that is like a carryover from last year's capacity increase that we did get. Passenger volume, we expect to grow broadly in line with the capacity, but revenues will be somewhat lower. That is because of the passenger segment mix. Passenger mix changes more towards leisure, and this is according to what we have expected also. That finishes up my part, I'll hand over to CFO, Pekka Vähähyyppä.
Thank you. Good afternoon. This is CFO Pekka Vähähyyppä . Moving on to page number 15. Here on the right-hand side we can see that our capacity and traffic has been growing extremely well. We carried more than 3 million passengers during the first quarter. That is 400,000 passengers more than the year before. Our capacity grew 19%, and we were able to increase our load factors by 1.5% points, up to 83%. In revenue, in right-hand side this means EUR 81 million up. All our revenue lines were growing versus previous year's first quarter. That ended up that we had comparable operating result back figures, EUR 13 million better than the year before. Like the CEO told in the beginning, we had a very good beginning for the year. Moving on to the next page. Here we see the most important cost lines on the left-hand side.
When our volume was growing, of course, our fleet and operations-related costs grew accordingly. Comparable because in April last year we took over our current kitchen operations from LSG. The catering costs, which decide to show a green, which is a decrease in costs, there earlier we had salaries. This is not fully comparable lines. What is also worth highlighting is that our rents were EUR 7.8 million below last year, and that is due to the fact that we had less wet leases this year than last year. Unit revenue RASK declined 3.6%, like CEO told, roughly half of that is explained by the fact that we had certain revenue currencies, that is Chinese, Japanese, and Swedish currencies, which were clearly weaker than the year before. On the other hand, our unit costs declined by 5.8%, and ex-fuel at constant currency the decline was 4.5%.
Moving on to the revenue analysis. The passenger revenue grew 15% to EUR 62 million. From the left figure you can see that most of that growth is related to capacity growth. Load factor had a positive contribution, here we see visible that the ForEx was negative this quarter, nearly EUR 11 million. Yield also contributed slightly negatively. All in all, EUR 62 million growth in passenger revenue. That revenue came mainly from Asia and Europe. Other revenue lines grew by EUR 19 million. All lines were growing. Ancillary was growing in line with the passenger number growth. Cargo was growing but slowly. We put in use our new cargo terminal in the beginning of the year, we have had some ramp-up issues with the new systems, day- by- day the operations are getting more smoothly.
Travel services, which is in our company, Suntours, they had also very nice development and revenue grew EUR 12 million. Moving on to next page. We have very strong balance sheet despite of the fact that we have been investing last year, especially three A350s were acquired by cash, and that is explaining mostly the increase in the fleet. Equity ratio is 33%, and that is up 1.5 percentage units from the first quarter last year. Adjusted gearing also developing positively and was 77%. Moving on to next page, we had a solid positive cash flow. Cash flow from our operations was EUR 78 million. EBITDA was positive. We had also working capital cash flow positive, and that is mainly advance received ticket money. Investments was mainly fleet-related investments.
When we include short term and longer term, longer meaning more than three months maturity, we have all in all cash, nearly EUR 1 billion at the end of the quarter. In the next slide, we can see that how our profit has been gradually, during the first quarter, developing and now after several baby steps, we reached a positive EUR 4 million profit for the quarter. Here we can also see that how important our second and first, especially third quarter, are for our full year results. Last slide which we have here is a reminder that we will take in use in the beginning of next year, new leasing standard IFRS 16. That will have a sizable impact on the way how we present our figures.
It will not have any impact on our cash flows, the way how we present our figures will change. The biggest change comes from the fact that currently we, like all other airlines, are presenting leases as off-balance sheet item, but in the beginning of next year, these leases will be included in the balance sheet, kind of a right of use lease asset and corresponding lease liability will be shown in the balance sheet. We'll come back to you in more details to this so that you will be prepared to see our figures in the new format beginning of next year. Thank you. That was all we had at this time, I think we are open for any questions.
If you would like to ask a telephone question at this time, please signal by pressing star one on your telephone keypad. Again, please press star one if you would like to ask a question at this time. We will pause for just a moment to allow everyone an opportunity to signal. We will now take our first question from Achal Kumar of HSBC. Please go ahead. Your line is open.
Yeah. Hi. Thanks for the opportunity. I had a couple of questions, actually. One, basically, I wanted to understand broadly in terms of how the trading looks like. Obviously, the last year was strong. Asian trading has been strong. How do you see summer behaving, especially given that the base is strong? Secondly, in the quarter you just reported, the yields were down everywhere, especially in North Atlantic. I understand it was down 9%, on Asia it was down 2%. How do you see that trading for the summers? Secondly, about the cargo yield, I wanted to understand, of course, the cargo revenue is slightly up or flat. The cargo tonnage was up. How the cargo yields are behaving? Thank you.
Yeah. Thank you. Pekka Vauramo, here. Markets are really strong at this moment, and we haven't seen any change in the market outlook. It applies also to the past the same as into the future. We look forward to having a solid summer this year. There's a whole lot of currency movements that we have seen in our system, and that is, of course, affecting the sort of yields. In terms of RASK, I think we said already that half of the RASK decline came in fact from currencies. We are affected by all the main currencies that are visible in our sort of top line, our Japanese yen, of course, US dollar, Swedish krona, which is also important for us. These all declined or depreciated against the euro. That is partially or to a great extent affecting these numbers.
This is the Pekka Vähähyyppä, CFO.
Regarding cargo, our cargo yield actually grew. That was in the material that went up by 7.7%. The cargo volume fell behind last year, and that is explained with the ramp-up issues which we had when we took in use or have been taking use of the new cargo terminal.
Perfect. Thank you.
Once again, if you would like to ask a question at this time, please press star one on your telephone keypad. We now have a follow-up question from Achal Kumar of HSBC. Please go ahead, sir. Your line is open.
Yeah. Hi. Thanks. I thought to give an opportunity to others, but so came the queue again. I had another few questions. One on your long-haul expansion plans. How are you planning your network? What sort of expansion you're planning on the long haul, what sort of planning you have on the short haul? Basically I wanted to understand, you said 15% growth. How this growth is distributed among the different regions, or if you can talk about the long haul versus short haul. Secondly, I just want to understand the aircraft delivery schedule this year, please. Thanks.
Sorry, what was the last one?
Sorry?
What was the last, the second question? Latter part of the second one.
Yeah, sorry. No, the two questions. One was about the capacity growth. If you can talk about the capacity growth in the long haul versus short haul and more specifically, if you can talk about in terms of long haul, what sort of capacity growth you're planning towards Atlantic and then towards Asia. That will be helpful. Second question was on the aircraft delivery schedule this year. Thanks.
All right. Good. The network, most of our growth truly comes from transit traffic. When we add capacity on the long haul, we need to add also capacity on the short haul. We do have these aircraft already in operation that are delivering the growth in this year because during the course of last year, we took delivery of altogether seven A321s and four Airbus A350s. Now this year we are operating them for 12 months and most of the growth in fact comes from there. We only get one additional Airbus A350 this year towards the end of the year. Then we do get one Airbus A321 also this year. Then we have some wet lease capacity.
Aircraft capacity increases are very modest in this year, but we have the carryover from last year and that delivers the growth, and it will be balanced between short haul and long haul. North American growth for us, if I recall correctly, this year we are flying a longer season to San Francisco, so that is in fact representing the growth. We are starting beginning of May and ending beginning of December. The San Francisco flights last year we started beginning of June, if I recall correctly, and finished off sometime in early September.
Right.
Very modest growth. Primarily the growth is in Japan, in China, about Southeast Asia. We saw growth in Thailand as well. Maybe there's something during the summer as well.
Right. Sorry, one more question I had. I want to understand given that the capacity is growing at 15%, that sort of indicates that the yield will remain soft, and you already said that the RASK will decline. How that will balances out given that the fuel is rising, and it is already trading at more than EUR 700. How do you see that balancing out in terms of profitability? Do you see any sort of scenario where you think the airlines will start passing on the fuel burden to the customers and hence the yield may rise?
Of course, the trading of flight tickets is very active and difficult to say what kind of price increases we will be able to get through. If you look our past performance during the Q1, you look at the RASK development. If you also pay attention to CASK development, that might give you some indications how we're dealing with most of it. In our plans, we were expecting to get lower yields from higher growth. We also know that the marginal cost of additional capacity is way below, and that's what the CASK development also indicates. It's below our average cost level. We have the growth dynamics in our system, and we are currently benefiting from the cost structure.
Right. Perfect. Thank you so much.
Thank you.
Once again, if you would like to ask a question at this time, please press star one. We will now take our next question from Victoria Moores of Air Transport World. Please go ahead.
Good morning, gentlemen. Thank you for the briefing this morning. My question is regarding partnerships or new ventures. Is there any areas that you think that you would benefit from a further partnership at the moment, either with another airline or a startup company? Are there any new ventures, new markets, new initiatives that you're looking at getting involved with right now. Thank you.
Currently, there's very little happening in the area of new partnerships, of course, with code shares and things like that on individual groups or with individual regions. We are active in that one, but there's nothing major going on in that arena right now.
Thank you. Any sort of new startup initiatives? I'm thinking sort of along the lines of technology or anything like that, or any sort of related services that you might be looking to invest in right now.
Yeah. We are, of course, moving on with our digitalization and various initiatives in that one. For example, we will provide iPhones for every Finnair employee, truly everyone. Currently in sort of delivery phase of those ones. We are developing not only apps and tools for our passengers to communicate with us, but also internally, we have had already set of apps available for our HR system, for our technical services and things like that. We believe in that there is lots of ground for productivity improvement in internal processes. Then of course, customer experience can be fully expanded both with dotcom and then with the mobile app. It just happens to be that the dotcom world and the mobile world takes quite some effort to integrate with the legacy IT system. That is somewhat a bottleneck at this moment.
Other than that, I think we have great plans.
We will now take our next question from Andrew Lobbenberg. Please go ahead. Your line is open.
Forgive me if I'm asking something you spoke about earlier because I have only recently hopped on the call because I was with the lovely Spanish airports. I did just hear Achal trying to press you a bit on the unit revenue and unit cost trends. Obviously you alluded to the fact that it's pleasing in the first quarter that, yes, unit revenues came down, but unit cost came down more, so that's good. Your margins are great. That's clear and that is leveraging growth. How are we meant to think, or how are you expecting things to develop when we move into the second half and the rate of growth is going to decelerate, I think quite aggressively because we'll start cycling against the periods when you had the fleet expansion.
How does that RASK CASK balance work in the second half? Conceptually, obviously you can't give predictions or guidance, but conceptually, how does it work with slower growth? A second question, just building on what Victoria was asking about, let's get blunter. Are there any signs of you moving towards progress with China Southern given the American investment and given IAG's interest there? A third question. How do you see the strategic developments playing out between IAG and Norwegian potentially impacting your business? Obviously, we don't know for certain at all what's going to play, but given the range of potential outcomes, how does that impact your business? I'll shut up.
I'll start from the CASK side. Of course, we don't give the profit guidance. At this time of the year, we'll come back to that one after Q2. We will be more specific in that one. When an airline grows, as long as the growth is there, one needs to, for example, recruit in advance to train people and do activities like that. Of course, when a growth rate starts to slow down, some of these costs will also disappear from the system. Let's say that then we will be more in balance with resources and revenue. It's not that straight line that when the growth stops or slows down the sort of the CASK scenario would turn the other way around. It doesn't happen like that because there's activities that we can stop also at that moment.
Into the future growth is very important part of this business being to our outpost to be in position to grow also in future. It does have a role in growth also in cost and productivity development inside the company and in the operations. Growth does have a lot of value also internally in the company. What was the second part of the question? There was question on IAG.
IAG, Norwegian, then also China Southern.
China Southern.
Specific with that partnership.
Yes, of course, we are talking with several Chinese airlines, currently we don't have anything to announce on any partnerships there other than I think we agreed with Cathay Pacific on code share with Dragonair. That's the development that we've done. No further news on our Chinese front. IAG and Norwegian, we are of course following through the press what's happening there and it may have sort of positive impact or negative impact on us, depends on which way the combination will work. IAG has two airlines that are members of Oneworld, and I have no indication that they would opt out of Oneworld and we would of course continue to operate within Oneworld. If they end up acquiring, that's whether they're going to bring it to Oneworld or not, remains to be seen.
Traditionally, they have not brought like Vueling is not part of Oneworld and at this moment, nor is Aer Lingus part of, nor is LEVEL part of Oneworld. It remains to be seen. First of all, if it happens. Secondly, what happens then with this partner? It can have either or, we don't know at this moment.
Fair enough. Thanks for your time.
Thanks.
Once again, if you would like to ask a question, please press star one. We now have another follow-up question from Achal Kumar of HSBC. Please go ahead. Your line is now open.
Hi. Sorry for taking one more. The last question from me is, I just want to understand in terms of your unit ancillary revenue. You are doing a lot and you said that you're spending a lot on IT, Wi-Fi on board, iPhone applications, and all those sort of things. Yet, your ancillary revenue per passenger was slightly down. How do we see that in this year going forward, please?
We will start to see the ancillary revenue per passenger also to grow. It will take, I would say we are talking about months, not years. That is the timeframe where we are and that we speak. Our total ancillaries are growing very strongly and driver is really the passenger volume. I think we are growing hand in hand with passenger volume, meaning that we are able to sell through our channels, but we have bottlenecks when we introduce new ancillary services, and they are primarily IT-related.
Sure. Thank you. Thank you so much.
We have no further questions at this time. As a reminder, that's star one if anyone else would like to signal. There are no further telephone questions at this time.
Okay. If there are no further questions, I would like to thank you all for participating in this call. We look forward to talking with you again in July in connection of our half year results. Thank you. Bye.
Thank you. This does conclude Finnair's Q1 results call and webcast. Thank you for your participation. You may now disconnect.