Good morning, and welcome to the presentation of Icelandair's Q3 results. My name is Bogi Bogason, and here with me is Ívar S. Kristjánsson, our CFO. As usual, we will go through a presentation, and following that, we will have a Q&A session, and please send us questions to the email address ir@icelandair.is. But before Ívar takes us through the financials in little bit of details, I would like to mention some of the key points of the information we published yesterday afternoon. On the operational side, our team performed exceptionally well, with record on-time performance month after month, which results in a lower interruption cost and also improved customer satisfaction. The focus we have had on cost optimization is depicted in lower unit cost between years, despite the high inflation environment.
However, as in the second quarter, unit revenues were lower than last year because of softer demand on the market to Iceland. But, despite the softer demand, we managed to ensure a strong load factor by using our flexibility and shift the focus to the via market. The yields on the transatlantic market were under a little bit of a pressure due to increased capacity, which resulted in lower profitability than last year, with EBIT of $83 million compared to $112 million last year. And, during the year, we have kept on strengthening our revenue generation, not the least by expanding our global partnership network. Here I would like to highlight our announcement in September, when Icelandair was introduced as the first airline partner of Southwest, which is one of the largest airlines in North America.
This is obviously an important milestone for Icelandair and a great re-recognition for our company and our team. A little bit into the outlook. We are seeing the market to Iceland recovering, and the booking status now is stronger than it was at the same time last year. We are also seeing signs of unprofitable capacity exiting the market a bit, which will lead to yield improvements. Therefore, we expect to see considerably improved profitability in the fourth quarter. Regarding next year, the year 2025, we are increasing our capacity by around 9%. The growth will mostly be in the shoulder seasons, and with limited additional resources, the same number of aircraft, which should contribute to lower unit cost. We are expecting the improvement in profitability.
We are forecasting quarter four to continue into the year 2025. And, on this slide, you can see the changes in the passenger mix. The softer demand to Iceland resulted in 9% fewer passengers than last year, although we still transported significant number of passengers to Iceland, or 550,000. This mix change also resulted in a 31% increase of via passengers. At the same time, we saw a 3% increase in from passengers. The demand on the from market is still strong, and we are seeing a preference to travel with Icelandair in all segments. I've already mentioned the improvement in on-time performance between years, or 5.1 percentage points, which is a great achievement by our excellent team of employees across the whole company, and many thanks to all of them.
CO2 emission per operational ton kilometer decreased by 3%. This positive development is due to higher load factor, more block hours on the Boeing 737 MAX aircraft than last year, and our strong fuel efficiency program. And freight ton kilometers decreased by 34.4% as we continue to adjust the capacity to the demand. But on the other hand, we saw a significant increase in sold block hours within our leasing business. And, Ívar, now to the financials, please.
Thank you, Bogi, and good morning. If we look at the numbers for the quarter, then we can see that the third quarter results that we presented yesterday, where we reported EBIT of $83.5 million, which represents a 15% EBIT margin, lower than last year, and primarily, that was due to the decrease in passenger revenue that amounted to $497 million and reduced $12 million, or 2%, year-on-year. Cargo revenue was $17 million, down by $4 million compared to last year, as we had fewer dedicated cargo flights as we scaled down the capacity to better match the demand. Leasing revenue, $23 million, up by almost $10 million, and other income was $17 million, which was slightly lower than last year, or by $1 million.
Operating expenses amounted to $427 million, up by 4%, which was positive development as we saw the production, for example, in the route network, grew. That grew 8% in the quarter. This, that leading to an improved cost performance. Salary cost $102 million, reducing slightly year on year. We had around 3,900 employees this quarter, down by 4% between years, and that is partly explained by the outsourcing of our flight catering operation earlier this year.
The flat salary cost was also the result of the reduction that we did in the non-production headcount in May, and published in or announced at that time, and less overtime costs in our production units as a result of the operational and on-time performance improvements. Aircraft fuel was $125 million, up 3% year-on-year, and other aviation expenses $95 million compared to $85 million last year on more production output, as was the case with other operating expenses that were $106 million, up by $2 million year-on-year. Net finance cost, $1.7 million, compared to $5.4 million last year.
That is explained by reduced and lowering of long-term debt, which we have been paying now down quite significantly over the last 12 months, or by more than $60 million. Net profit of the quarter was $69 million, $15 million lower than last year. If we look at the revenue and the unit revenue in particular, it was 8.4 cents. 10% year-on-year decline. As like Bogi mentioned, we had also the decrease in the demand on the Iceland market or the market to Iceland, and our shift of focus to the transatlantic, which put the pressure on the yields and resulting then in the lower unit revenue.
And that can be seen with the via passenger mix or the via passenger proportion of our total passenger count, representing 48%, this year, compared to 40% last year. Yield was, or the average yield was $0.093, 11%. Excuse me. 11%, but, you know, lower than last year, but partly offset by the higher load factor, which improved by 1.4 percentage points. Revenue generation on Saga Premium was strong, as it has been in recent quarters, with the unit revenue actually increasing there year-on-year.
And as we have mentioned as well, it is comforting and pleasing to see the result we have achieved on the cost side this year, which is reflected in the unit cost reduction this quarter, as in the last one, despite inflationary pressures in parts of the industry and here in Iceland. The unit cost in the quarter was $0.071, decreasing by 2%. And that is also true with the CASK ex-fuel. If you look at that, that was down 2% as well. The reduction driven by good ops performance, including a 15% year-on-year decrease in unit cost related to irregular operations, our cost control, and the continued introduction of the more cost-efficient MAX aircraft.
Looking at the fuel, in particular, 125 million, up by 3% on the 8% production growth. This favorable development is result of the more fuel-efficient fleet, good performance in our fuel efficiency program, and the cost of the carbon emission credits were slightly lower as well. Weighted effective fuel price this year was $908 per ton, similar as last year. Looking ahead, then, our fuel hedging position covers approximately 38% of the usage of the next twelve months, at the average price of $798 per ton. Our leasing business continues to perform well. Large or huge growth in the revenue in the quarter, and we do foresee that to continue in the coming months.
The segment delivered $4.9 million in EBIT in the quarter, representing a 21% margin. Cargo continues to have a strong turnaround there. Or the turnaround in the quarter was close to $6 million year on year, and we still or we expect the cargo operation to deliver positive EBIT for the full year. Then looking at the cash flow and liquidity, we had a favorable development since start of the year in the cash flow. Net cash from operations in the first nine months was $209 million. Investing activities, net investing activities, including CapEx, was around $99 million, and financing activities, $77 million. Repayment of interest-bearing debt and reduced or reduction in the lease liabilities.
At the end of the quarter, we had $92 million in undrawn credit line or credit lines, bringing the liquid funds to a total of $396 million at the end of Q3. Finally, on the balance sheet, assets, total assets amounting to $1.6 billion, roughly, increasing by $132 million from the beginning of the year. Non-current assets up $81 million due to new lease agreements, and new leased MAXes, new lease agreements in the leasing segments, and other investments.
On the liability side, other non-current liabilities growing on increase in the provisions of future maintenance events and trade and other payables, along with deferred income, are higher than in the beginning of the year due to the seasonality of the business. Equity, total equity $297 million. Equity ratio 18% at the end of the quarter. Back over to you, Bogi.
Thanks, Ívar . Yeah, a little bit of a business update, and then the outlook. This quarter, the fourth quarter of 2024 , will mark a very big milestone in the 87 history of Icelandair, when we will take delivery of our first Airbus aircraft. And the preparation for the implementation of the Airbus fleet is well underway within the company. So we will take delivery of one Airbus A321LR in this quarter, and three more in the H1 of next year. They will replace four Boeing 757 aircraft, so the number of aircraft in the fleet in the summer of 2025 will be the same as this year.
And the foundation of our business model, the Icelandair business model, and our key competitive advantage, is the location of Iceland, midway between Europe and North America. Our route network, as you can see here on the slide, is the heart of our business model, where we leverage the location of Iceland to connect the continents, North America and Europe. At the same time, we are in a prime position to ensure a strong tourism market here in Iceland, and we are proud to be the first-choice carrier among Icelanders. And to further unlock the opportunities of the network, we are continuing to renew our fleet. Where the Boeing 737 MAX has been performing extremely well in recent years and has created a lot of profitable growth opportunities for us, and Raleigh-Durham is a great example of that.
The Airbus A321LR will do the same, and with the introduction of Airbus A321 XLR, new and attractive markets will open up, so in summary, the renewal of our fleet will create immense opportunities for Icelandair and, at the same time, be fundamental for the future development of Iceland as a tourist destination and a connecting hub. However, the location alone is not enough for an airline to operate from Iceland successfully. You have to have the right product and service for the market that you are operating in. At the same time, you need a strong infrastructure to compete in a very competitive international environment and to be able to address external challenges that regularly come up within our industry and in our environment, and that is what we at Icelandair have.
Over the decades, we have built up and invested in our leading hub carrier position here in Iceland, our extensive route network, our operational infrastructure, where we strive for operational excellence and cost optimization in line with our product and service offering. We have our strong commercial infrastructure and diverse revenue streams, and last but not least, our experienced team of employees that make all the difference, and when it comes to our commercial infrastructure, we have been focusing on driving revenue generation and diversification further by enlarging our partnership network. In June, we signed a strategic partnership agreement with Emirates, which is the largest airline in the Middle East. Their extensive network will open up exciting and convenient travel opportunities for our customers across the Middle East and into Asia, and vice versa, and in October, we signed a codeshare agreement with TAP.
Customers traveling from Iceland can enjoy stopover in Lisbon before continuing to TAP's destinations in Europe, Africa, and South America. Recently, last week, we signed two codeshare agreements at the Arctic Circle Assembly here in Reykjavík with Air Greenland and Atlantic Airways. With these agreements, we will provide great connections between Greenland and the Faroe Islands on one hand, and North America and Europe on the other hand, via Iceland. These agreements will drive stronger connections and share growth for the airlines and promote exciting destinations within the Arctic region. Finally, in September, we signed a MoU with Southwest Airlines, as I mentioned before, and by that becoming their first airline partner. Southwest is one of the largest airlines in the US.
It operates over 800 aircraft, has around 75,000 employees, and carried almost 140 million passengers last year. With our partners in North America, Alaska Airlines, JetBlue, and now Southwest Airlines, we are extremely well-covered in the U.S., which creates a lot of opportunities for the future. Then, onto the outlook for the remainder of this year, the Q4 of this year. The outlook for the passenger network is better than at this time last year, and the booking status is stronger. There are signs, as I mentioned earlier, of some unprofitable capacity exiting the market, which should improve yields in the market. As Ívar went through, the turnaround of Icelandair Cargo continues, and their profitability of Loftleiðir stays strong.
So with all that, we expect to see considerable improvement in profitability in Q4 between years, and the full year EBIT to be in the range of negative $10-$20 million. And then to our flight schedule for next year, we will serve 55 destinations in the summer of 2025 . We are adding 2 new destinations, Nashville in North America, which will provide exciting connections for passengers from Iceland and Europe to different US destinations. And in Europe, we are adding Gothenburg as a new destination. Frequency will also be increased to destinations where we have strong airline partners, leveraging these partnerships opportunities. And next summer, we will operate 42 aircraft in the passenger network, including 21 Boeing 737 MAX aircraft and 4 new Airbus A321LRs.
But the number of aircraft in the fleet will be the same between years. The growth for next year will be concentrated in the shoulder seasons, spring and fall, including an earlier start of the second bank just before Easter. Capacity during the summer peak will be similar to this year. Overall, we expect capacity growth to be around 9% in 2025 compared to 2024, with similar resources, so that should that growth will positively impact the unit cost. As the lower unit cost shows, this year we have been focusing on improving efficiency to ensure improved profitability. With that in mind, we initiated a comprehensive transformation journey in the first half of this year, which has already started to materialize.
The primary objective of the transformation is to increase operational efficiency, mainly by lowering costs, but also through revenue-generating initiatives. During this journey, we are leaving no stones unturned, and we have put a plan in place that will significantly contribute to reaching our long-term 8% EBIT goal, and by the end of next year, our objective is that the transformation will deliver $70 million at an annual run rate, with further impact in the following years, so we expect, as we've been saying, the improvement in profitability that we are forecasting in the fourth quarter to continue into next year, and the impact of the one transformation journey will further enhance the operational results.
So after few challenging years, I firmly believe that Icelandair is in a very strong position now, and has all the opportunities to create value for its shareholders and the Icelandic society. And that brings us to the end of the presentation, but hopefully we have some questions from the audience now.
Yes, good morning. First, on the leasing business, looking at the segment breakdown for the nine months, the leasing operation is delivering higher EBIT than the route network. Will you put more emphasis on leasing going forward?
The leasing business at Loftleiðir has been performing very well this year and in the past, and is a very important part of our core business. We have been gradually growing there. We have one, well, the largest customer, we added one aircraft this year there, and we have been growing the VIP business as well. But we are not expecting any step changes there. We just go after the opportunities we see, and. But there are no plans for any big growth, just a gradual growth as we see in general in our business. Right, Ívar ?
Yeah, I agree with that. And, in addition to that, we are putting a lot of focus on kind of the winter capacity that we have in excess in the route network. And the focus in the leasing business in the coming years will as well be on that, to utilize that as much as we can.
You referred to some unsustainable capacity exiting the Via market. Is that only PLAY, or are there other airlines doing the same?
We have seen, you know, the announcement from PLAY, and we've seen capacity taking out of the market in quarter four. Based on the news in the market, we expect to see similar development in the first quarter. It seems that the capacity will be a bit more rational going forward than it has been in the past, so. We also see some international airlines cutting down capacity into Iceland, for example, for next year. As I said, there are signs of some irrational capacity going out of the market both in the market to and from Iceland and the transatlantic market as well.
Here is a question on... Yeah, and also, on that note, what has the competitive impact of PLAY been, where has it been the most? Is the impact equal across all markets, to, from, and via, or mostly in the to and from market?
We are, of course, competing mostly on the market to and from Iceland. Both airlines are fairly small players on the transatlantic market. So, you know, we are competing mostly on the markets to and from Iceland with local carriers, as we've been doing in the past.
How do you see the development of yields on the transatlantic market in the next 12 months?
Would you like to start there, Ívar?
Yeah, I mean, I think it's really difficult to evaluate, you know, how the development is gonna be so far out? But, like Bogi mentioning what we are seeing in the forward-looking capacity, then kind of the growth seemed to be stabilizing and there was a high growth in that market last winter, which, you know, negatively impacted the yield. So it's kind of, you know, if we look into the next summer, we are quite early in the booking season, so I think it's too early to tell.
At least kind of if we look at the capacity side of things, of the capacity, you know, and demand balance, then at least that seems to be developing more favorable than last year.
And to add to that, because of the, yeah, decreased demand into Iceland or on the market to Iceland at the beginning of this year, we did shift the focus quite rapidly, and we went quite deep into the Via market, which impacted the yields quite a lot. Now, we are seeing capacity going out of the market to and from Iceland, and we can easily shift the focus back to the local market, and that should improve the yields as well.
Some airlines have been affected by issues with Pratt & Whitney engines that seem to be causing delays in the delivery of new aircraft. Is this going to have any impact on your plans?
Ívar, you are responsible for that.
Yeah, yeah. Okay, so I'll take this. With regards to the Pratt & Whitney kind of issue and kind of, you know, what is happening there, the main reason there has to do with kind of production issues from engines that were produced a few years ago. That obviously does not have an impact on the aircraft that and the engines that we are taking delivery of next year, or, you know, late this year and next year. We are in constant dialogue with Airbus on the delivery stream, and as it stands now, then we are expecting all the aircraft to be delivered before the summer. So no, we are not expecting to be significantly impacted by the situation as it stands now.
Here is a question on the implementation of Airbus. How is the implementation going, and what impact will it have on unit cost? Is the cost gonna be temporarily higher during the implementation?
You know, the implementation is going well. All the preparation is according to plan, so that is going quite well. It is a fairly big task, but you know, the cost is, Ívar, you can maybe better shed a light on that.
Yeah, on the implementation cost, then?
On the cost, yeah.
Yeah, yeah, yeah. Yeah, I mean, we will have some implementation cost on the Airbus into next year. That has to do with the kind of the largest chunk of it is with regards to you know, the ramp-up and training of pilots, mechanics, and other people in operation. It's not gonna be a significant impact, and on the unit cost it will have a positive impact. I can't really say a specific number, but obviously, you know, the biggest advantage of the three twenty-one LR versus the seven five is on the fuel and the maintenance costs.
And as long as fuel stays where it is now, then there are significant savings, especially as we are flying those aircraft on the longer missions.
So far this year, we have been, you know, preparing for the implementation-
Yes
... this year, so there is cost involved in, like in quarter three, but it's, as you were saying, not in any big numbers.
Here we have the final question. Do you have a forecast for EBIT guidance for the year two thousand twenty-five?
No, we have not published. We did not publish an EBIT guidance for twenty twenty-five yesterday, when we published the information. But we said that, you know, quarter four is we see a positive development between years and quarter four, and we are expecting to see that positive development into next year. Now we are working on our targets and budget for next year, and hopefully early next year, we will shed a further light on the outlook for twenty twenty-five. But we are expecting a considerable operational improvements between 2024 and 2025. That's the only thing that we can say now.
There is one more question. You mentioned that the market to Iceland has shown signs of improvement in recent weeks. Do you expect the share of through passengers in the route network to increase again in 2025 and perhaps be closer to a long-term balance?
Yes, we are seeing signs of recovery of the Icelandic market, and the booking status is quite strong, so we believe that the share of passengers to Iceland next year will be higher than this year. Exactly how it will end up, we don't know, but we believe that the share of to passengers will go up between years.
Okay, that's it for the questions.
Okay, thank you very much for good questions. This is the last time that we present quarterly results in this building.
Yeah.
A big milestone ahead of us when we are moving to Hafnarfjörður in November. We've been, or Icelandair has been in this building for sixty years, so it's a big step for us to move to Hafnarfjörður, but it will create a lot of efficiency, being closer to the airport in Keflavík and move all the operations into one building. So we look forward to that, and we look forward to see you at another place next time. Thank you so much.
Thank you.