Finnair Oyj

Good day, ladies and gentlemen. I am Erkka Salonen from Finnair Investor Relations, and it's my pleasure to welcome you all to this Finnair's Third Quarter 2025 Earnings Call.

I have here with me our CEO, Mr. Turkka Kuusisto; and our new CFO, Mrs.

Pia Aaltonen-Forsell. I will now turn this call over to you, Turkka.

Please, go ahead.

Thank you, Erkka, and very good afternoon to all of you joining this earnings call. The busiest season is now behind us and we are happy to report that we did deliver a solid Q3 financial performance, especially considering the negative impact from the industrial action.

As you might recall, it took until the mid-July to get the final CLA concluded and behind us. And before that, the quarter was shadowed by 3 strike days that led into cancellation of more than 300 flights.

And today, we are reporting somewhat -- some EUR 18 million of direct impact from the industrial action. And of course, for us, it's been very difficult to evaluate the so-called indirect impact, but they are in millions of euros.

So if we take the comparable operating result of EUR 51 million and calculate back EUR 18 million plus something from the indirect side, I guess that we can all agree that we would have been on par with the last year performance or even above. The revenue increase was 2% and that was also influenced by the cancellations and the indirect impact of the industrial action.

And then unfortunately, we faced some unexpected maintenance/AOG issues during the quarter that continued to impact negatively to the ASK and revenue development. But it's worth of mentioning that after we got the CLAs and disruptions behind us, our quality of our service and flight regularity returned to a very high level almost immediately because the weeks followed by the industrial actions actually scored to 99.3 in terms of regularity, but now the full quarter result is somewhat lower because of the AOGs.

Also from the traffic plan and summer season network planning side, it was a great success when it comes to our traffic in Far East Asia, especially in Japan. We decided to increase the frequencies and capacity so that we flew 25 weekly frequencies between Helsinki and Japan, which made us the biggest operator or carrier between the Europe and Japan.

And as we can see from our load factors and also yield development, that has been a very strong geographical region for us during the summer season. It's not on my slide, but Pia will revert to it later in her presentation.

But yesterday, the Board of Directors of Finnair has also decided on the second installment of the return of capital payment that is now due 7th of November, if I recall it right. Still taking some remarks around the collective labor agreements.

Now we have reached with all employee groups and unions agreements that are in line with the general labor market framework and policies, which is, of course, extremely important for us when it comes to protecting and developing our cost competitiveness, not only in the short term, but also when we take a longer-term value creation road map in front of us. We've been working intensively when it comes to returning customer satisfaction.

And as you know, the biggest contributor to the positive NPS development is the quality of the service and regularity and punctuality. Very happy to report that the NPS of the total customer base did increase from the low point of 28-ish close to 40 from August to September.

And then the development has continued. I will come back very shortly in this seat cover issue that we faced.

But anyhow -- and then we will -- when we take a more granular view related to the NPS development and explore the, let's say, the core customers of ours, we are actually trending even higher. So the most frequent flyers are even more satisfied with our services as we speak.

Even though it was an event after the reporting period, this seat cover issue that we faced, we wanted to take the topic also today with you because it has gained quite a lot of media attention because we needed to ground 8 aircraft of our 321 fleet 2 weeks back because of a question marks in the certification process of the seats and seat covers. To be very transparent, we followed the instructions of the designer and the OEM of those covers and seats.

But then in our own procedures -- internal procedures, we found question marks and therefore, we decided to ground the aircraft. But also very happy to report that all planes are now flying.

6 of them are back in our scheduled routes. 2 of them are anyhow in the maintenance shop, one being painted and then one going through a heavy overhaul process.

So from that point of view, the operation is stabilized back to normal. When it comes to quantifying the financial impact, especially now when we face this CLA-related disruptions, this is a completely different size item.

It's a minor item versus the CLA disruption and impact. So we are at max discussing few million euros.

So that's something that we wanted to very transparently discuss with you today. And of course, also within the guidance range that we will discuss later in this call.

Then moving to the geographical footprint of ours. As already mentioned, Asia performing very strong double digit growth, both in ASK and revenue development and also RASK developing positively and also the RPK yield and load factors also on a positive side.

Europe and domestic rather stable or flattish, but nothing extraordinary in these geographical regions. And the big negative numbers in the Middle East area are explained by the fact that we are not flying anymore from Copenhagen and Stockholm to Doha.

So it's only Helsinki-Doha operations. So therefore, we are 2/3 down given that change in our scheduled traffic.

North Atlantic traffic and North America, especially USA has, of course, remained as a challenge, I guess, for all air companies because of various aspects. And we had a plan to increase the ASK and capacity for that area and we did so.

Of course, we already hedged some of the capacity down given the CLA issues and also the development that we witnessed early Q2, early Q3. But anyhow, the demand and yield development didn't meet our expectations.

So therefore, we are reporting a double-digit decline in RASK and also load factor came down by high single digit numbers. But maybe with these words, I would hand it over to Pia to discuss the financials in greater detail.

Thank you, Turkka, and good morning, good afternoon, everybody. And I can maybe start by saying I joined as CFO on 1st of August and I've been happy to join in a period when we have resumed normal operations, as Turkka just described.

So someone said to me earlier today that, hey, Pia, you had sort of the right smile when you presented the results. We are not on camera right now, so you cannot see that.

And I think it's based on the fact that, hey, we have been able to operate. Q3 is an important season.

And you can also see that in the results that despite the really difficult periods that we had before this quarter and the long strikes and the fact that the strike impact was still EUR 18 million into the operating result of this quarter, we did land at a comparable operating result of EUR 51 million. And really, if you take into account the strike impacts, we were more or less sort of at last year's level.

And given some of the sort of structural changes on the cost side that I will come back to, I still think this was a good expression of the team's also ability to bounce back. So thank you to the team and also, of course, customer trust rebounding.

Thank you to customers, as you, Turkka, pointed out. There's maybe a few other sort of smaller changes that are visible on this page, but I think I'll answer your questions later on if you have detailed questions on the specific lines.

And I would really go to the next page, which is more about giving the holistic view of the results in the third quarter. So we already discussed the strike impact.

And I think that's maybe just a technical note, if you look at the more detailed bridge that we have in some of the appendixes, of course, there, you see sort of a breakdown of all of the elements. But I really think it's important to summarize the strike impacts into one bucket.

And then there are considerations relating to the closure of the Russian airspace that had led to higher navigation and landing costs in this very corner of Europe where we are operating. Obviously, we are one of the few that really remains with sort of big traffic amounts here.

So we have taken some additional costs due to that. And obviously, that's a topic, the Russian airspace closure that is a fact that we have to accept and that's where we are right now.

Obviously, then is there a question, could these costs be lower? That's for the authorities to look into if that could be possible or not.

Then there's another big societal change right now, which is particularly in Europe, the strive towards decarbonization. And that's visible for companies like us in many ways.

But in this chart, what you see is, of course, the addition to costs. So you see it's like EUR 10 million more per quarter.

And I think that gives a good representation of what we are experiencing right now. So we are experiencing the emission rights costs now sort of being there to the full because there are no more free allowances for us.

So that change has happened during this year and that we still had maybe something I don't want to say in our back pocket, but some reserves from previously. But that is definitely something that going forward we know the European legislation is there.

There are no more free allowances. And that's really one of the big points of additions to costs during this year for decarbonization.

And obviously, the other one is sustainable aviation fuel, where there's now the mandate to buy 2% blend and that's obviously as well increasing our costs. So it's a fair representation, a quarterly addition of EUR 10 million during this year.

And I still see into next year, there will still be a little bit of a hike up because of the ETS and the emission rights sort of being full-blown impact during next year. So those were those structural changes.

And then you can see that we have volume growth and that's really -- if I would like to simplify things, I would say that the green change here, the improvement of EUR 70 million, really the gross actually improvement on volume side is even a bit bigger than that. But obviously, if you look into the details, you can see a few other minor changes there as well.

Someone asked me about the changes in yield. I think one sort of noteworthy thing is that the compensations that we have paid also for the strike, they tend to go impacting that key figure.

So maybe that's just one thing to keep in mind. I also already got today a lot of questions about the impact, which, Turkka, you already commented, about the seat covers and whether that's a big thing or not.

It's not a big thing. But obviously, for our customers, it came during a period of school holidays.

So of course, that's a thing that we really needed to fix as soon as we could and it has also been debated quite a lot. But if I look only from a financial perspective, it's a few millions.

The impact will be in Q4 and that negative impact is within -- when we have given the guidance for Q4, obviously, that's within the limits of that. Okay.

I will speed up. I only have a few more things to say.

The second installment of the return of the capital. So this was something that was already decided in the AGM.

Now it's kind of the formal decision about also paying the second installment because we are in a strong enough financial position to be able to pay. That will be happening on the 7th of November.

When you look at the ratios from our balance sheet, we are kind of continuously showing some improvements. And I think I will go to the next page to finally comment on a few of the things that we've done through this year.

Obviously, if you look at first the operating cash flow, that's sort of the big -- that's the positive here. When you then look at where have we spent and allocated some of the cash, obviously, we've done a lease buyback.

We have also been paying back our loans and leases according to the schedules. So I think that the same diligent work that was already started earlier to make the balance sheet healthier has continued step-by-step and it continues to show as gradually also improving ratios.

I think with that, Turkka, I would hand it back to you.

Yes. Thank you, Pia.

So a few remarks related to the way forward. You might already be aware of that in 2 weeks' time, we have a more in-depth discussion with you in form of a CMU.

So already now to all of you, a warm welcome to our event. But in the meantime, what we've communicated externally that for the summer season 2026, we will be adding new destinations and more frequencies to the summer season in the Europe, Catania, Florence, Valencia and island of Kos being a concrete examples.

And then also, I guess we already discussed that in connection with the Q2 report that we are reopening the Helsinki-Toronto route after 10 years of not flying to Toronto. So that will be an interesting avenue also for us to explore the demand and connectivity between Helsinki and Canada.

Of course, a big step for us and I guess, also for the whole industry is the development of new distribution capabilities, but also a more modern digitalized interaction with the customers. And as a first airline, we did introduce ancillary combos where our passengers before the flight can select and collect various ancillaries and buy them as one bundle and get some monetary benefits out of it.

And I guess this is a very important milestone and step for us as a company because you can see from our figures that during the third quarter of '25, the revenue from ancillaries actually bypassed the cargo revenue. So that's a concrete example of that the selected commercial strategy is paying off and we are further improving our capabilities and competencies to continue that double digit growth.

As Pia mentioned, our company and of course, the whole industry is facing this environmental compliance and also the CO2 reduction challenge and dilemma. And we are, of course, very proactive when it comes to contributing to the different collaboration platforms to build the availability and affordability of next-generation fuels, i.e., SAF and eSAF maybe later down the road.

And in the meantime, of course, we are engaging intensively with our customers also on the corporate side to provide them with opportunities to contribute to the CO2 reduction challenge. And that's, of course, for the corporate customers important topic because if and when they have committed to their own SBTi targets, they need also that Scope 3 reductions in their whole value chain.

And then maybe as a final remark on this slide, for the fourth year in a row, we did receive a 5-star rating from APEX that is a Global Airline Passenger Experience Association. And for us, these are, of course, important acknowledgments, especially given the time when we have faced for various reasons more than needed kind of reputational issues.

So that in the big scheme of things, we need to be very humble and fix the disruption situations that we have faced. But just wanted to push the point that nothing is broken in the platform and the underlying business and operations.

So therefore, we have a great platform to build on. With these words, we will take you to the outlook and guidance slide.

We are today providing you with a specified outlook and guidance based on the Q3 development. And today we are saying that the capacity by ASK will increase by some 2% during 2025 and revenue will be approximately EUR 3.1 billion.

And the comparable operating result range has been narrowed from the upper limit side. So if we said -- when we said in July that the range is EUR 30 million to EUR 130 million, today we are saying it's EUR 30 million to EUR 60 million.

And what led into kind of lowering the upper end of the comparable result range is explained by a few factors. First and foremost, the North Atlantic demand and yield development has continued to soften.

And then when we will take already discussed indirect impact from the industrial action, the unexpected AOGs. And then in July, when we envisioned the potential upside scenario and to reach that, it would have required a continuation of oil price decrease.

So therefore, in connection with this report, we see that it's unlikely to reach the earlier upper end. So therefore, we are taking it down.

But I want to highlight that this guidance is now in line with the previous one because already then we discussed that we are closer to the lower end of the provided range. And then as a final remark, already something that I mentioned, warm welcome to all of you and please register if you haven't done so yet, November 13 at 13 hours Helsinki time, where we will provide you with a Finnair Capital Markets Update.

In addition to me and Pia, you have the opportunity of meeting the full leadership team of Finnair. So it's a great engagement and opportunity to discuss with the full team.

But with these words, welcome to the event, and let's open for the Q&A.

Thank you, Turkka. Now would be a convenient time for any questions you may have.

So please follow the operator's instructions to present them.

Okay. My questions are a bit fleet-related and then the North Atlantic.

I wanted to ask you what's about the campaign regarding the future narrow-body fleet, which you plan to decide by the end of the year, if you maybe have an update for us? And then I would like to ask you also regarding the wet leases to the Qantas, the A330 Qantas aircraft, how this continues or you maybe have too many A330s in the fleet already?

And then I'd like to ask you a bit about the North Atlantic.

So if I start with the 330s, the wet lease arrangement or collaboration continues until the winter season of '26. So I guess it's end of March when the wet leased aircraft and our pilots then, of course, will return to our own operation.

And then we have now already deployed the 2 330s on dry lease basis to Qantas. And I guess it was last week when the second aircraft was received by Qantas.

So currently, 4 out of 8 330s are tied to Qantas collaboration. The 2 wet leased aircraft will return to our own network for the summer of 2026.

But we need to keep in mind that one of the 330s will -- the lease agreement will not be continued. So the fleet size will decrease.

The total fleet size will decrease from 8 to 7 in months to come. When it comes to the narrow-body campaign, we want to run a thorough and a diligent process when it comes to the campaign and we will communicate more when we have some tangible news.

We are having discussions with the OEMs. And of course, the process has progressed since we last talked.

But today, we don't have any news to be disclosed.

Okay. And second part from my side, the North Atlantic.

As many airlines are suffering already kind of overcapacity and you also mentioned that the North Atlantic business was not doing that perfectly, do you have some measures for this? Do you plan to reduce the North Atlantic network maybe then for next year or especially over the winter when the demand is lower?

For the winter season, we are flying less because some of the U.S. destinations are summer destinations for us.

So the winter schedule is different. And of course, when it comes to the summer schedule '26, we have still some time to evaluate that how the demand will develop and we might tweak the intended summer season plan accordingly.

So we are following the market development, demand development and yield development extremely carefully.

Okay. Just a clarification, how many Airbus 330s will be then flying for Qantas or will be with Qantas?

4 now.

It's Joonas from Evli. If I can just return to this North Atlantic capacity question.

So I already saw from your September traffic figures that your North Atlantic capacity already decreased a bit. So was this a reflection of this transition to winter schedule?

Or did you like already make some -- did you already kind of react to this rather weak situation in North Atlantic traffic?

It's both and intentional reaction. But at the same time, we have one of our 350s grounded because of this towing accident when the wing tip actually hit the hangar door.

So we are down 1 350 that has also led into the capacity decrease in our totality. And then we decided to hedge the North Atlantic traffic.

All right. So when will this aircraft return to traffic exactly?

The current prognosis is early 2026 because, again, we want to, of course, secure the airworthiness and safety of the aircraft. It has taken a bit longer than expected.

Okay. So regarding your EBIT guidance for Q4 basically.

So this North Atlantic situation still continues to weigh on your result. And what about the -- I mean, you mentioned these landing costs and environmental and SAF costs, EUR 10 million impact quarterly.

I think you kind of -- you already implied that this environmental costs will increase towards next year. But what about Q4?

Are they still like around EUR 10 million during Q4? Or you only see increase in Q4?

Pia here. Yes, to confirm that, I think we are now on the 2% SAF mandate, it's been there since start of the year.

The end of the free emission allowances has been there since the start of the year. So it's a pretty even development during this year, about EUR 10 million per quarter.

And then going into next year, what impact is then simply that we still had some benefits this year from, let's say, previous years relating to the EU EPS. You could say that we had hedged or you know how this works.

We benefited somewhat and that's why I said that there could still be some increase towards next year, but it's not as big as the increase year-on-year from '24 to '25.

That's clear. And a final question.

So given this rather weak North Atlantic situation and thinking about next year, maybe you can -- you will come back to this later, but can you already like -- because the Asian traffic seems to be doing rather well at the moment. So do you have already any plans to probably allocate more capacity there versus North Atlantic?

No, I guess that's something that we do on a daily basis that we want to optimize the utilization of the fleet. Of course, within the given constraints, I guess we will fly more to Tokyo if we had more landing slots.

So it's kind of a complex topic, but something that we monitor on a continuous basis. And I guess that towards the end of the year, early 2026, we can also provide you with a more detailed view that how shall we utilize the wide-body capacity.

As it seems that there are no further questions, we can conclude. Oh, one more.

It's me again, but I found it quite interesting, your Asian network and it's still doing quite well despite you have to fly such a long route. I think is it the Americans now not allow any more the Chinese carriers to fly over China to the U.S.

Do you think you can see some improvement that one day you are able to fly again over Russia in the near future? And what do you think regarding the in a way unfair competition with the Chinese carriers which flying directly via Russia to Europe and you fly -- you have to fly around?

So 2, of course, very important and complex questions, Kurt. So when it comes to the closed Russian airspace, that's something that I already -- I can say already today because I've discussed that with you and media also earlier.

Our strategic thinking and our strategy process is built on the kind of assumption that the Russian airspace remains closed for the time being because we don't see any development that would change the situation quickly in a very short-term future. When it comes to kind of a level playing field, I guess that's something that the European carriers are jointly acknowledging that that's something that should be dealt with if the situation continues.

But I guess that there is kind of a bigger theme than only a national topic here in Finland or topic related to Finnair. So I would mark that as a EU level discussion.

So now there are no further questions and we may conclude the call. Many thanks for the excellent questions and joining the event.

We wish you a nice day.

Thank you all and hope to see you in 2 weeks' time.

See you soon.