finnair capital markets day · opportunity to improve our productivity 11 finnair capital markets...
TRANSCRIPT
12 NOVEMBER 2019
FINNAIR CAPITAL MARKETS DAY
Agenda
Finnair Capital Markets Day 20192
Finnair strategy update – CEO Topi Manner
Network and fleet – CCO Ole Orvér
Break
Operational excellence – COO Jaakko Schildt
Modern Premium Airline – SVP Customer Experience
Piia Karhu and CCO Ole Orvér
Break
Creating value for shareholders – CFO Mika Stirkkinen
Closing words – CEO Topi Manner
Cocktails and networking
Disclaimer
Finnair Capital Markets Day 20193
By attending Finnair Capital Markets Day 2019 or by reading this presentation, you acknowledge and agree that the information provided
orally or in this presentation (i) is provided in summary form; (ii) is not intended to contain all the information that is or may be material to investors or potential investors;
(iii) may be amended and supplemented as Finnair sees fit; (iv) may not be relied upon for the purpose of entering into any transaction and should not be construed as,
nor be relied on in connection with, any offer, invitation or recommendation to purchase or subscribe for, underwrite or otherwise acquire, hold or dispose of any securities
of Finnair. Any investor or prospective investor considering the purchase, disposal or holding of any securities of Finnair should consult with its own counsel and advisers
as to all legal, tax, regulatory, financial and related aspect thereof.
This presentation contains forward‐looking statements. These statements may include the words “believe”, “expect”, “anticipate”, “foresee”, “intend”, “plan”, “estimate”,
“focus”, “continue”, “will”, “may”, “targeting” and similar expressions as well as statements other than statements of historical facts including, without limitation, those
regarding the financial position, business strategy, development plans, objectives and targets of Finnair. Such forward‐looking statements involve known and unknown
risks, uncertainties and other important factors which may affect Finnair’s ability to implement and achieve the economic and monetary policies, budgetary plans, fiscal
guidelines and other development benchmarks set out in such forward‐looking statements. Risks related to Finnair’s operations are discussed in the company’s financial
disclosures and on the company’s website at https://investors.finnair.com/en/governance/risk-management. Actual results, performance or achievements may be
materially different from future results, performance or achievements expressed or implied by the forward‐looking statements. Such forward‐looking statements are based
on numerous assumptions regarding Finnair’s present and future policies and plans and the environment in which Finnair will operate in the future. Furthermore, certain
forward‐looking statements are based on assumptions or future events which may not prove to be accurate, and no reliance whatsoever should be placed on any forward-
looking statements in this presentation. The forward‐looking statements in this presentation speak only as of the date of this presentation, and Finnair expressly disclaims
to the fullest extent permitted by law any obligation or undertaking to disseminate any updates or revisions to any forward‐looking statements contained herein to reflect
any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. Nothing in the foregoing is
intended to or shall exclude any liability for, or remedy in respect of, fraudulent misrepresentation. The information in this presentation has not been independently verified.
No representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the presentation and the information contained herein.
Information in this presentation has been obtained from various sources and Finnair does not guarantee the accuracy or completeness of such information. All projections,
valuations and statistical analyses are provided for information purposes only and should not be relied upon as an accurate prediction of future performance.
FINNAIRSTRATEGY UPDATETopi Manner, CEOCapital Markets Day 2019
New phase: sustainable, profitable growth
Finnair Capital Markets Day 20195
• Potential to capture
economies of scale
• One of the most modern
long-haul fleets
• Stronger brand and
customer experience
• Improved digital
capabilities
• Modernised culture
Disruption
Restructuring
Renewal
2008–2010
2011–2014
2015–2017
2018
Accelerated
growth
Sustainable, profitable growth
Finnair Capital Markets Day 20196
We have unique strengths and are winning market share
Successful strategy leveraging unique geographical location
Unrivalled local network and attractive market for incoming tourism
Strong operational performance and safety valued by our customers
High customer satisfaction and people experience
Solid financial situation with healthy balance sheet
Delivery on targets
Finnair Capital Markets Day 20197
We have achieved our previous targets on growth - need to improve profitability
* IFRS16 Adjusted
** Last 12 months (2018 Q4–2019 Q3)
Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019
2016
-1.6%
2014
5.2%
2015 2018*
2.4%
2017 LTM**
1.0%
6.6%7.7%
24
171220
282
504 513
2018*2014 LTM**2015 2016 2017
EBIT Margin EBIT
Net operating cash flow
Strong growth in EBIT and cash flow
mEur
Gearing well below 175%
ROCE at 12.7% average last two years > 7%
ASK Asia more than double
20 million passengers by 2030 ahead (13.3
2018)
OP profit 6% (average 6.3% last two years)
Roadmap to sustainable, profitable growth
Finnair Capital Markets Day 20198
Growth in line with market growth
Strengthened customer offer
Increased efficiency
Improved market position in Asia
We leverage our strong hub and focus on the most profitable Asian cities
Finnair Capital Markets Day 20199
Long history,
strong partnerships
* Boeing commercial market outlook
** Market share on our relevant market
Most environmentally
sound
EU – Asia estimated growth
> 4% CAGR*
Strengthening position
> 6%**
Shortest route
24hr rotation
Focused strategy
We focus on the core; growth through transfer
Finnair Capital Markets Day 201910
Integrated business One culture
50%
30%
6%
7%
7%
Transfer Passengers
Local Passengers
Ancillaries
Travel Services
Cargo
COMMITMENT TO CARE
COURAGE
SIMPLICITY
Revenue
share
Source: Finnair Interim report for 1 January–30 September 2019 and Finnair Internal data
Opportunity to improve our productivity
Finnair Capital Markets Day 201911
OPEX has
increased
faster than
revenues
* IFRS16 Adjusted
** Last 12 months (2018 Q4 – 2019 Q3)
Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019
OPEX ex Fuel CAGR
6.1%
ASKs CAGR
8%
Revenue CAGR
5.5%
2014 2015 2016 2018*2017 LTM**
OPEX ex fuelASK Fuel Revenue
+8%
+6.1%
ASK growth vs RASK development
More stable RASK development moving forward as growth moderates
Growth in ancillary revenues per passenger
Finnair Capital Markets Day 201912
There are also opportunities to improve our revenues
We are taking a step-change in retailing to improve on revenues
7.4 7.08 6.83 6.96 6.72 6.55
2016 LTM**2014 2015 2017 2018*
ASK RASK
8.22 €
10.02 €
11.55 €12.15 € 12.11 € 11.95 €
2014 2015 2018*2016 2017 LTM**
Ancillary Revenues per passenger
Cents (€) €
- 2.4%
CAGR
* IFRS16 Adjusted
** Last 12 months (2018 Q4 – 2019 Q3)
Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019
+8.3%
+7.8%
Fleet investments to boost efficiency and reduce carbon footprint
Finnair Capital Markets Day 201913
* Estimated investments including already announced commitments
3.5 – 4 billion
euros*
Replacement /
Renewal2/3
Growth1/3
• Modern Premium Experience
• Carbon footprint
• Fuel efficiency
• Cost savings
• Enabling growth
Investments predominantly funded through cash flow
Sustainability is a natural part of everything we do
Finnair Capital Markets Day 201914
We want to be
a frontrunner in
sustainability
BiofuelBiofuel flights since 2011
1/2Single-use plastics (end 2022)
0Zero landfill waste at HEL
Our detailed sustainability plan to
be published in early 2020
27%CO2/RTK since 2005
Long-term roadmap for carbon reduction
Finnair Capital Markets Day 201915
Fleet investments to reduce carbon
footprint and boost efficiency
Sustainable aviation fuels
(Bio and Synthetic)
IntermodalityOperational improvements
Emissions trading
Voluntary and non-voluntary
offsetting (including CORSIA)
Our refined strategy and ambitious new targets
Finnair Capital Markets Day 201916
Continued growthIn line with market growth
Strengthened customer offerLeading to stabilised unit revenue
Increased efficiencyLeading to continually decreasing unit cost
Improved market position in Asia
* Over the cycle (at constant fuel and f/x), 12–18 month build-up period
• Comparable EBIT > 7.5%*
• Return on Capital Employed (ROCE) > 10%*
• On-time performance (OTP) > 85%
• NPS positive development
• eNPS positive development
We have a new leadership team to drive the next stage of our journey… many of whom you’ll meet here today
Finnair Capital Markets Day 201917
Topi MannerChief Executive Officer
Piia KarhuSVP Customer Experience
Ole OrvérChief Commercial Officer
Jaakko SchildtSVP Operations
Tomi PienimäkiChief Digital Officer
Nicklas IlebrandSVP Strategy
Johanna KarppiSVP People & Culture
Arja SuominenSVP Communications and
Corporate Responsibility
Sami SareliusSVP and General Counsel
Mika StirkkinenChief Financial Officer
Best customer
experience in
Finland
(Aurinkomatkat)
Customers and employees make it happen
Finnair Capital Markets Day 201918
People are proud
to work at Finnair
2,000New employees in the
past 2 years
Best Airline in
Northern Europe
Best European
Airline
Most attractive
employer NPS
38
4.25*
* 2018 WeTogether survey (1–5 scale)
NETWORK AND FLEETOle Orvér, CCOCapital Markets Day 2019
Strong network leveraging Helsinki’s geographical position connecting Europe with Asia
Finnair Capital Markets Day 201920
21destinations
Over
100destinations
8destinations • 14.3 million passengers in the
last 12 months*
• More than 20,000 origin-
destination city pairs in our
network
* Source: Finnair Interim report for 1 January–30 September 2019
Transfer traffic between Europe and Asia is an essential part of our business
Finnair Capital Markets Day 201921
* Traffic splits by flown ticket revenue rolling 12 months (Q4/2018–Q3/2019)
62%
38%
2/3 of flown ticket revenue from transfer traffic
73%
14%
10%3%
0%
3/4 of transfer traffic comes from Asia
Asian
Intra European
Atlantic
Oceanic
Other
Transfer
Local
Growth in line with market
Finnair Capital Markets Day 201922
Finnair growth, ASK billion
Source: Finnair 2018 Annual report, Finnair Interim report for 1 January–30 September 2019, SRS
31 32
47
20192014 2015
+3.1%
CAGR
+10.5%
CAGR
3–5% p.a next
3 years
PKX
CTS
HND
PUS
Our growth is targeted towards Asia with a combination of new destinations and additional frequencies
Finnair Capital Markets Day 201923
New in 2019 New in 2020
• Daxing - Beijing November 2019
• Sapporo December 2019
• Busan March 2020
• Haneda - Tokyo March 2020
• Over 100 weekly frequencies to destinations
in Asia in summer 2020
Continuously strengthening our network
with new destinations in Asia
SJB – 25% market share Europe Japan
AJB – 20% market share Europe USA
Leveraging strong partnerships to improve network scale and reach
Finnair Capital Markets Day 201924
Strategic Joint Businesses*
Norra – operations partner for regional flying
Strategic partnerships
* Source: Year ending Jul 19, DDS O&D + est pax
We continue to
operate as an
independent
airline
leveraging on
our strong
partnerships
Cargo is an integrated part of our business
Finnair Capital Markets Day 201925
The A350 is an
extremely efficient
cargo aircraft
Finnair has the most
modern air cargo
terminal in Europe
Digital integration
enabling efficient
operations and high-
quality delivery
Strengthening our
position in special
products and
services to improve
yields
More efficient use of Helsinki hub and assets through four bank structure
Finnair Capital Markets Day 201926
Image by Arkkitehtitoimisto ALA Oy / Arkkitehtitoimisto HKP Oy
Growth outside main bank – illustrativeNumber of flights (Arrivals and Departures)
5:00–10:00 10:00–14:00 15:00–19:00
(main bank)
19:00–01:00
Current Future
Fleet growing, with better utilisationof narrow-body aircraft
Finnair Capital Markets Day 201927
12
12
37
22
Narrow-body
Wide-body
20252019
Approx. 70
Approx. 30
Turboprop
Other regional
83
Approx. 100
Narrow-body / Wide-body ratio 2.8 : 1 ~2.3 : 1
Fleet age in line with peers – narrow-body fleet to be renewed
Finnair Capital Markets Day 201928
11.8
11.7
11.6
10.7
10.2
0.0 5.0 10.0 15.0
Air France-KLM
Lufthansa
IAG
SAS
Finnair
Source: Cirium fleets database
Average fleet age vs peer European network carriers
Wide-body
average age of
5.2 years –
significant fuel
and CO2
benefitsNarrow-body
renewal to be
initiated within
the strategy
period
Summary
• Well-positioned network and Europe –
Asia strategy
• Continued growth – in line with market,
3–5%
• Further improved utilisation of core
assets
• Fleet investments for growth,
operational efficiency and sustainability
Finnair Capital Markets Day 201929
OPERATIONALEXCELLENCEJaakko Schildt, COOCapital Markets Day 2019
Best customer
experience in Finland
(Aurinkomatkat)
Best Airline in
Northern Europe
Best European
Airline
Most attractive
employer
Operational quality and safety culture are Finnair’s strengths
31
• Finnair has an excellent safety record
• Our punctuality and regularity are on-par
with peers
• Our customer satisfaction is high with an
NPS of 38*
* Q3 2019 figure.
4.25*People are proud to work at Finnair
* 2018 WeTogether survey (1–5 scale)
Finnair Capital Markets Day 2019
Key initiatives to improve our unit cost performance
32
On-time
performance
Weight and fuel
Automation and
efficiency
* IFRS16 Adjusted
** Last 12 months (2018 Q4 – 2019 Q3)
Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019
Finnair costs have grown faster than revenues
OPEX ex Fuel CAGR
6.1%
ASKs CAGR
8%
Revenue CAGR
5.5%
2014 2015 2016 2018*2017 LTM**
OPEX ex fuelASK Fuel Revenue
+8%
+6.1%
Finnair Capital Markets Day 2019
On-time performance improvement offers great potential
Finnair Capital Markets Day 201933
• On-time performance contributes
to improved productivity, cost
savings and customer satisfaction
• Key initiatives to improve
• Planning
• Execution
• Predictability
69%75% 75% 78%
83% 85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
85.0%
FinnairLufthansa IberiaNorwegian SAS KLM
Share of on-time arrivals (≤15 min delay)
from OAG, 2018
Note: Flights are considered on-time if actual departure is within 15 min of scheduled departure.
Source: OAG, Finnair internal data
Target
Finnair Capital Markets Day 201934
Weight and fuel efficiency are key drivers for unit cost improvement and sustainable operations
Planning and forecasting
Flight optimisation
Aircraft maintenance
Airport operations
Data analytics improves operational excellence
Existing decision model
• Static history average flight data
• Av100+ data points
• Human decision-making
Improved customer
experience and financial
performance
Planned decision model
• Real-time passenger flow
flight data
• 1,000,000+ data points
• AI based decision-making
35 Finnair Capital Markets Day 2019
We will drive our unit costs down
20162015
7.01
2014 2017 LTM**2018*
6.53 6.67 6.496.21 6.21
ASK Fuel CASK ex Fuel
Continually
decreasing
unit cost
+8%
* IFRS16 Adjusted
** Last 12 months (2018 Q4 – 2019 Q3)
Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January–30 September 2019
Finnair Capital Markets Day 201936
MODERN PREMIUM AIRLINEPiia Karhu, SVP Customer ExperienceCapital Markets Day 2019
Ole Orvér, CCO
Taking the company to a new level
MODERN PREMIUM AIRLINE
We offer more choice and ease to customers
CHOICE
EASE
VALUE
PERSONALISED
38NPS
Finnair Capital Markets Day 201939
Introduction of Premium Economy to capture demand from both new and existing customers
40 Finnair Capital Markets Day 2019
Premium Economy Economy class
• Economy that allows
customers to choose
how to travel
• Elevated economy experience with more onboard space and upgraded dining
Business class
• Extreme comfort, full-flat
seats and
top-class service
New fare brands to offer more choice and drive upsell
Finnair Capital Markets Day 201941
Premium Economy
A
BC
Business
AB
C
Economy
AB
C
42
Comprehensive product portfolio allowing customers to choose how they want to travel
Food, beverages & lounge
Wi-Fi & entertainment
Extra baggage Travel retail
Destination extras
Finnair Capital Markets Day 2019
Aurinkomatkatholiday packages
Finnair Holidays
Seats & upgrades
Optimised pricing to maximise conversion and value
43
Origin – destination revenue
management set-up
Advanced analytics
Dynamic pricing
Ancillary optimiser
Finnair Capital Markets Day 2019
OPTIMISED
PRICING
Total renewal of sales and
distribution capabilities
Better sales to more customers
44
• Better product information display
• Improved sales management and
personalisation
• Distribution costs optimisation
• Ability to distribute via new marketplaces
Finnair Capital Markets Day 2019
Finnair marketplaces have been renewed and enable better selling
45
*June 2019
** Comparison is done month on month in new Finnair.com in open markets.
*** Average increase in selected PoC markets
Finnair Capital Markets Day 2019
68 NPS* in mobile app
New mobile app New Finnair.com
+20%**increase in average
order value
+35%*** increase in
conversion rate
Value comes from more customers, stabilised unit revenue and optimal distribution spend
Finnair Capital Markets Day 201946
MORE PRODUCTS BETTER PRICING BETTER SALES BIGGER NETWORK
2015 ..2016 2017 2018 2019 ..
RASK development Illustrative
ASK growth
CREATING VALUE FOR SHAREHOLDERSMika Stirkkinen, CFOCapital Markets Day 2019
Cash / Sales
Source: Company filings. Data are averages as of last available company
filings.
Note: Cash / Sales = Cash and cash equivalents / LTM Revenue
European LCCs include Ryanair, easyJet and Norwegian; European full-
service carriers include Air France-KLM, IAG, Lufthansa, SAS and Turkish
Airlines. Norwegian figures adjusted for convertible bond and equity
offering.
Net Debt / EBITDA
Finnair Capital Markets Day 201948
Finnair’s strong capital structure supports growth
Source: Company filings. Data are averages as of last available company
filings.
Note: EBITDA = LTM EBITDA. For SAS, EBITDAR used instead of
EBITDA for comparability and adjusted for hybrid offering. Norwegian
figures adjusted for convertible bond and equity offering.
34%
30%
18%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Finnair European low-costairlines
European full-serviceairlines
3.47
2.57
1.44
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
European low-costairlines
European full-serviceairlines
Finnair
257% 255%
74%
0%
50%
100%
150%
200%
250%
300%
European low-costairlines
European full-serviceairlines
Finnair
Gearing
Source: Company filings. Data are averages as of last available company
filings.
Note: Gearing = Net Debt / Equity before minority interest. Net Debt = Total
interest-bearing debt – Cash and cash equivalents. For SAS, capitalized (7
x lease payments) operating leases are added to total debt to ensure
comparability; adjusted for hybrid offering. Norwegian figures adjusted for
convertible bond and equity offering. Total interest-bearing debt does not
include unfunded pension obligations due to data availability.
Investments support sustainability and efficiency
Finnair Capital Markets Day 201949
Future planned investments until
2025 are estimated to be
3.5–4.0 Bn€ 850 M€ are current commitments
2/3 of the investments are
replacement and
1/3 growth
The investments drive
better cash flow and
dividend payout in the
future
The investments will
result in less CO2
emissions and support
fuel efficiency
Cash flow has been strong
Strong operating cash flow can be utilised when making
future investments and majority will be financed with cash.
Dividend policy remains stable
Finnair Capital Markets Day 201950
Strong cash flow enables investments, dividend policy remains intact
Finnair pays on average at least 1/3 of the EPS as dividend
during an economic cycle. Earnings trend and outlook,
financial situation and capital needs are, however, taken
into consideration.
0
100
200
300
400
500
600
2015 2016 2017 2018 2018* LTM**
Net operating cash flow
171
220
282
383
504513
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2015 2016 2017 2018
Earnings per share Dividend
0.570.55
1.23
1.08
0.10
0.30 0.27
mEUR EUR
* IFRS16 adjusted
** Last 12 months (2018 Q4 – 2019 Q3)
Source: Finnair 2018 Annual report, Finnair restatements 2018, Finnair Interim report for 1 January - 30 September 2019
Cash to sales
Finnair is currently well above the minimum ratio
Gearing
Finnair Capital Markets Day 201951
Target more efficient, cycle-proof balance sheet
Gearing ratio is on a healthy level
0%
10%
20%
30%
40%
Q3 2019 Minimum
Cash to sales ratio
0%
50%
100%
150%
200%
Q3 2019 Maximum
Gearing ratio
Source: Finnair Interim report for 1 January - 30 September 2019
Hybrid capital
The goal is to lower the hybrid capital in the future
Share of owned aircraft
Finnair Capital Markets Day 201952
Target more efficient, cycle-proof balance sheet
Strong cash position allows to increase the share of
owned aircraft ratio
0
50
100
150
200
Q3 2019 Future
Hybrid capital
0%
50%
100%
Q3 2019 Future
Share of owned aircraft
mEUR
Source: Finnair Interim report for 1 January - 30 September 2019
Finnair Capital Markets Day 201953
Long-term strategic targets
Sustainability
Strategic metric
Comparable EBIT margin
ROCE
Net promoter scope (NPS)
On-time performance (OTP)
Employee NPS
Profitability
Customer satisfaction
Employee satisfaction
Target
Comparable EBIT: > 7.5%*
NPS: increasing (currently 38)
OTP: 85% (up from 78% in 2018)
eNPS: Increasing (currently 19)
ROCE: > 10%*
To be decided during Q1 2020
* Over the cycle (at constant fuel and f/x), 12–18 month build-up period
• Passenger traffic
• Ancillaries
• Cargo
• Travel Services
54
Focused strategy, integrated business and one culture driving profitability
Network & fleet
Modern premium airline
Operational excellence
One culture & ways of working
Sustainability
Finnair Capital Markets Day 2019
Shareholder value with profitability and efficient balance sheet
Finnair Capital Markets Day 201955
Shareholder
value
Balance sheet efficiency
Balanced ASK growth
of 3–5% CAGR
Comparable EBIT > 7.5%*
Modern Premium Airline = Stable
RASK
Operational Excellence =
Decreasing CASK
ROCE > 10%*
* Over the cycle (at constant fuel and f/x), 12–18 month build-up period
CLOSING REMARKSTopi Manner, CEOCapital Markets Day 2019
• From accelerated to sustainable profitable growth, focusing
on connecting Europe with Asian megacities
• Continuous efficiency focus to capture economies of scale
• Driving growth in retailing revenue, stabilising unit revenue
• A frontrunner in sustainability to future-proof the business
• Continued focus on customer and people experience
• Fleet investments to boost efficiency and reduce carbon
footprint
• Strong cash flow generation used to finance investments
while keeping the dividend policy intact
Finnair Capital Markets Day 201957
Value creation for shareholders –sustainable, profitable growth
Culture & ways of working
Finnair Capital Markets Day 201958
Values
Commitment to care
Simplicity
Courage
Ways of workingLeadership principles
Organise for success
Work together
Transparency & follow up
Clear targets
Accountability
Agile
Lean
Base salary
Short-term incentives
Long-term incentives
FlyShare
Employee fund
Compensation model aligned with strategic targets
Finnair Capital Markets Day 201959
• Common strategic targets
• Unit performance
• Strategy financial targets (profitability,
unit revenue, unit cost)
Open to all employees –
promoting ownership of Finnair shares
Our compensation model Strategy Targets
Our refined strategy and ambitious new targets
Finnair Capital Markets Day 201960
Continued growthIn line with market growth
Strengthened customer offerLeading to stabilised unit revenue
Increased efficiencyLeading to continually decreasing unit cost
Improved market position in Asia
* Over the cycle (at constant fuel and f/x), 12–18 month build-up period
• Comparable EBIT > 7.5%*
• Return on Capital Employed (ROCE) > 10%*
• On-time performance (OTP) > 85%
• NPS positive development
• eNPS positive development