Smooth flying for Finnair the first half of the year - chilly winds ahead

"The past six months have been quite satisfactory for Finnair, but with the weakening global economy, a chilly autumn wind can be felt sweeping over the travel industry," states Finnair's President and CEO Keijo Suila.

"In comparison with other airlines, we seem to be a positive exception both in volume development and result. Finnair's passenger numbers have been on the rise in the first half of the year and cabin factors have increased during recent months," says Suila.

The Group profit for January-June 2001, after financial items amounted to EUR 28.6 million, which equalled the previous year's level. Turnover increased by 5.8 per cent. Operating costs rose by 5.1 per cent and fuel costs by 21.8 per cent in the first six months of the year. Earnings per share amounted to EUR 0.34, compared to EUR 0.37 the previous year.

During the second quarter, the Group's profit after financial items weakened from EUR 33.9 million to EUR 22.6 million. The primary reasons for the decline in profitability were the general slowdown in the growth of demand for air travel, a weakening of unit revenues and the increase in fuel costs.

"The effects of the tightening economy can be seen in a smaller number of business passengers and weaker domestic demand. Recent strong turbulence in the industry makes predicting the second half of the year very difficult, but already at this point we can foresee that this year's result will be clearly below last year's result," Mr Suila says.

In the early part of 2001 Finnair maintained its position in the main markets and customer segments for scheduled passenger traffic. The sector has generally suffered from over-capacity in recent months. There was a particularly large fall in cabin factors in North American traffic. As far as leisure traffic is concerned, the capacity of package tour producers has better corresponded to demand.

As for Finnair's own traffic, the volume trend in passenger traffic at the beginning of the year was in the main favourable. As a result of the strategic reorganization of our long haul traffic, the number of passengers and cabin factors particularly on Asian flights expanded significantly during the first half of the 2001 financial year. Business class and North American traffic have exhibited the weakest trends.

Between January and the end of June revenue passenger kilometres rose for scheduled passenger traffic by 6.1 per cent and fell for leisure traffic by 1.9 per cent. Revenue passenger kilometres for all traffic rose by 2.7 per cent in the January-June quarter, while available passenger kilometres went up by 3.4 per cent. The passenger load factor fell from 69.5 per cent to 69.1 per cent.

During the first half of the year, the total number of passengers increased by 2.3 per cent. The number of passengers using scheduled traffic went up by 2.5 per cent and those taking leisure flights by 1.7 per cent. For international scheduled passenger traffic, the number of passengers using business class decreased by 3.2 per cent, but there was an increase in tourist class numbers of 8.3 per cent. The proportion of business class travel in international scheduled traffic has diminished by 2.2 percentage units to 25.2 per cent.

Scheduled traffic going strong

The operative functions of the Finnair Group were divided on January 1. 2001 into six business divisions, which are: Scheduled Passenger Traffic, Leisure Traffic, Cargo, Aviation Services, Travel Services and Support Services. The volume of business conducted between the divisions is considerable. The turnover figures for the business divisions include internal Group sales amounting to EUR 317.2 million.

Turnover for scheduled passenger traffic for April-June amounted to EUR 313.3 million, of which more than 90 % came from outside the Group. Scheduled passenger traffic comprises domestic, European, Asian and North American passenger traffic. Air traffic revenues for Scheduled Passenger Traffic rose by 2.5 per cent in the period April-June. Growth was strongest in Asian and domestic traffic, and was weakest in North American traffic.

"Sales continue to develop favorably in the growing Asian market which supports Finnair's growth and long-haul strategy well," Mr Suila states.

The reduction in business travel as well as campaign pricing also contributed to the decline in unit revenues for the Scheduled Passenger Traffic division, which amounted to a fall of 3.6 per cent during the second quarter. Operating profit for Scheduled Passenger Traffic during the second quarter amounted to EUR 18.4 million. This operating profit included the previously mentioned profit of EUR 6.7 million from the sale of one MD-80 aircraft.

Turnover for the Leisure Traffic division during April-June amounted to EUR 71.0 million, which meant an operating loss of EUR 0.4 million. Air traffic revenues for Leisure Traffic rose by 11.5 per cent and revenues per revenue passenger kilometre, or unit yield, rose by 7.2 per cent in the second quarter. However, the rise in unit revenues was not sufficient to cover the increase in fuel costs. Turnover for Cargo operations during April-June amounted to EUR 33.5 million, which left an operating loss of EUR 0.1 million. As a result of lower volumes, cargo revenues fell by 4.8 per cent. Turnover for the Aviation Services division for the April-June quarter amounted to EUR 129.2 million, of which more than 20 per cent originated from outside the Group.

There was an operating profit of EUR 13.1 million. The Division comprises aircraft maintenance services, ground services and Group catering operations.

Turnover for the travel agency division during April-June amounted to EUR 26.5 million, of which about two thirds came from outside the Group. The operating profit came to EUR 2.1 million. The division is responsible for the Group's domestic and foreign travel agency operations.

Finnair continues to offer quality service

Finnair is focusing its long haul capacity on the Asian routes. The increased number of destinations as well as increased frequency make up a fast and flexible service between Asia and Europe. The long haul fleet is in the process of being refurbished with the goal of further increasing passenger comfort on long distance flights.

Finnair is at the forefront in the development of electronic services. Finnair will be the first in the world to provide an e-mail connection on all its long haul aircraft. Finnair's own travel portal, as well as those operated in co-operation with other partners, is becoming increasingly popular among consumers. The oneworld alliance is becoming an ever closer-knit family with a more extensive route network, increased electronic commerce and joint procurement.

Finnair's finances are stable

Investments in the January - June quarter corresponded closely with the same period the previous year at a little under EUR 130 million. This investment comprised mainly of the purchase of two Airbus A320 type aircraft. Income financing excluding divestment profits and extraordinary items came to EUR 64.6 million, compared with the previous year's figure of EUR 72.2 million.

Interest bearing debt at the end of the period amounted to EUR 297 million, with liquid assets worth EUR 145 million. The gearing ratio at the end of June was 23.7 per cent, whilst the equity ratio was 42.0 per cent, having been 42,6 per cent at the end of the previous financial year. The rate for the Finnair Oyj share has fluctuated between EUR 5.20 and EUR 4.25. The market value of the company's shares on June 30 2001 was EUR 411.8 million, which is EUR 30 million more than at the turn of the year.