Finnair Oyj (FIA1S) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Finnair's Q3 pre-silent call. My name is Sophie, and I'm new here at Finnair, started the 1st of September as IR Director and really looking forward now to continue Erkka Salonen's good work. Today, Pia, our CFO, is here to talk about a little bit what has been happening, giving you a slight update. But without any further talks from me, Pia, I hand over to you.

Thank you, Sophie, and good afternoon or good morning, depending on where you are, ladies and gentlemen. Let me start with a few remarks. I'll talk briefly about market, obviously, about fuel situation and hedging, a couple of words about our fleet and that probably rounds up my commentary that will be rather brief. And after that, we will open up for questions and answers. So first, on the market situation, I mean, what we've seen in July and August, and you've also probably seen our traffic performance releases, really, it has continued to show positive momentum. Our passenger volumes increased by 9.3% in July, by 2.3% in August year-on-year. And let's remember, last year, there were still some extraordinary conditions. Maybe most importantly that we still have industrial actions during parts of July in 2025. Anyway, if you would ask me sort of what the market momentum is right now when I use that word, I would really say that the market is still showing resilience despite this world that we are living in, despite everything that's going on. We still see the growth year-on-year. We still see a resilient situation. Obviously, Middle East merits a few comments, as you recall, our direct exposure is very limited. It's a low single-digit share of our capacity and passenger traffic that we used to have there, and right now, obviously, we are not flying to Middle East area. But the situation still continues to impact the whole market. I mean, it impacts the industry, through safety, through capacity, through passenger flows and obviously as well through fuel markets. So holistically, the impact is big, but the direct exposure in terms of flights is limited and that direct exposure as well, you will see now, come through in that there's no flying to the Middle East. A little bit about load factors. Our load factor was high, 85% in July. And it really in July, it improved in all traffic areas operated by us. In August, the passenger load factor remained high. It was 80.3%, and it improved in the European and North American traffic. And unit revenue development has remained clearly positive. And I'm going to call to you just the improvements or sort of the delta. So in July, RASK increased by 8.9%. And in August, RASK increased by 12.3%. And what's supporting this, it's, of course, good low factors, but it's as well higher yields. And in the background, we have continued the good work with optimizing our network, capacity allocation and pricing to capture demand. And obviously, there's a lot of sort of differences or market flows -- so overall, a resilient market situation has continued. I also want to give a bit of credit and a shout out to cargo. I think their performance has been really strong, and it can support Finnair's performance as well also as well through the Q3. Then let's talk a little bit about fuel. It remains a really important point, especially in terms of the cost escalation. But most importantly from Finnair's perspective, we have not canceled flights because of fuel. So with this, I mean fuel shortage. And I mean that when we first discussed the war in Iran and the situation early in the spring, of course, there were then some fears of fuel shortages across the industry. And indeed, the jet fuel market has remained constrained, and this has impacted the prices that stay at a very elevated level. But the jet fuel supply across Finnair's network is expected to still remain stable in Q4. It's supported by the continued close cooperation with our fuel suppliers. And a few more detailed comments about sort of more sort of market view where we see it right now on fuel. Supply in Southeast Asia and the United States remains relatively good. Europe is more constrained, but still stable. Europe is partly supplied by overseas products from the U.S., Africa and Southeast Asia. Holistically, winter typically reduces jet fuel demand, which should support overall availability. And as before, we really continue to monitor the market very, very closely, and we also work with our suppliers to secure reliable fuel availability for Finnair's operations. Then let's discuss hedging a bit. At the end of the second quarter, Finnair had hedged 81% of its fuel consumption for Q3, 71% of its fuel consumption for Q4, and then looking into next year, 58% for the fuel consumption in the first quarter of 2027. And I'll still quote the second quarter of 2027, that's 40%. So you can see that there was, let's say, a window during the summer when we actually saw lower prices and that was a good moment to increase some of the hedging. However, holistically, if we look at now the market throughout Q3, the fuel market has been -- prices have been rising and been very elevated and the opportunities to do hedging have not been that many. So I think here, just as a reminder of Finnair's fuel hedging policy, we have a spread color within which we can move with our hedging. And clearly, as you can see, those hedging ratios into next year are a bit lower now than what we have seen all through 2026. But we will keep you posted. And in the next report, we will again quote the most recent hedging levels. And it's really -- when we are looking ahead, the market conditions are currently looking very volatile. There's no immediate easing insight given the continued hostilities in the Middle East and the lack of visibility on clearly promatic on to de-escalate the current conflict. We are constantly following the developments in the Middle East, and then, we will plan. We are planning to act accordingly, so obviously, staying extremely sort of on top of any opportunities for hedging also going forward. I would like to round up my comments just very briefly relating to our fleet. The development of our fleet has been a significant part of our strategy, and you are well aware of the longer-term commitments that we have made. I just want to say things are moving according to plan. However, in the third quarter, there was no new capacity added really to our commercial fleet. But we have some additions coming in. The one, I, of course, want to mention is the 350 -- Airbus 350 that we are still sort of getting towards the end of the year, even though commercial flying will start next year. So we continue on the set strategic path when it comes to our fleet. And with that, Sophie, I would like to end my comments.

Thank you, Pia. I think we can jump to questions. And so please, operator, if you can help us with that.

[Operator Instructions] The next question comes from Jaakko Tyrvainen from SEB.

It's Jaakko from SEB. I would like to ask on the situation with Air Baltic under Chapter 11 products. Have you seen Air Baltic cutting their Finish routes yet? Or is there any of such activity visible? .

Jaakko, thanks for the question. And indeed, I mean from at least the headlines that we all can follow, of course, they are now entering into this Chapter 11. And I couldn't comment yet on sort of such competitor movement, but obviously, what we have been reading in their statement is that they are cutting down their fleet, et cetera. So definitely something to follow.