Finnair benefits from strong Asian market and yield improvement. But challenges at home

The Finnish government will be relieved that its 56% stake in Finnair is in better shape as the flag carrier has finally recorded a solid EUR42 million profit for the Sep-2010 quarter, after 7 successive loss making quarters. This compared with a loss of EUR33 million for the 2009 period and follows restrained growth to recapture profitability - which has caused it some lost ground in market share, but improved yield.

Finnair's turnover in the quarter grew by 26% to EUR551 million. According to President and CEO Mika Vehviläinen, “the third quarter was the first profitable quarter after seven successive loss-making quarters. The market situation has been clearly better than at the beginning of the year, which is evident in increasing demand and a sharp strengthening of unit revenues.”

Unit revenues in Finnair's scheduled traffic improved by 23.5% on 2009, driven by “growth in business travel demand in traffic between Europe and Asia”. This is fortunate, because the carrier will increase Asian traffic capacity by more than 20%.

Said Mr Vehviläinen, “our market share in traffic between Asia and Europe is continually strengthening. We are committed to continuing our strong growth in Asia-Europe  traffic and will take advantage of strengthening demand in the market.” Japan was particularly strong: “In August, our sales in Japan exceeded sales in Finland for the first time.”

Europe-Asia traffic revenues account for 65% of Finnair's scheduled passenger and cargo revenue.

Sep-2010 quarter results in brief; more restrained capacity growth

Turnover rose by 26.2% to EUR551.4 million (EUR436.9m in 2009)

Passenger traffic grew 1.1%;

Scheduled traffic yield per RPK improved 23.5% y-o-y

Unit costs fell by 3.8%

Operating result: a profit of EUR41.9 million (EUR32.9m loss)

According to the financial report, Finnair's traffic volume growth in the Sep-2010 quarter has been “somewhat lower than the trend for the sector as a whole. The strengthening of the demand base has been harnessed to improve unit revenues.                                   

“Demand has improved particularly in business travel, which has changed the sales mix. This, in turn, has clearly improved passenger kilometre-based unit revenues.

“Unit revenues have improved most in Asian traffic, where travel demand comes mostly from outside Finland. Unit revenues have improved least in domestic traffic.

Finnair has meanwhile increased its market share between Asia and Europe – but, significantly, Finnair's market share in traffic departing from Finland has “fallen slightly as other companies have increased their capacity in Finland's international air traffic.

In this respect it will be most interesting to see how the oneworld member is affected by the US Department of Transportation’s recent grant of anti-trust immunity across the Atlantic for American Airlines, British Airways and Iberia. American promptly announced a daily B767 Chicago service to Helsinki, to commence in Apr-2011. American codeshares with Finnair on Boston, Washington, Seattle, San Francisco, Los Angeles and Miami. Meanwhile, Finnair is beefing up its Asian services - and in many cases competes head to head with bigger oneworld partners.

Finnair's Outlook: improving unit revenues

“Air travel and cargo demand is expected to continue to be strong in Finnair's  market areas due to the strengthening of national economies and subsequent export industry growth. The demand base provides an opportunity to improve unit revenues from the previous year.”

The fragility of the business is highlighted by Finnair’s reported sensitivity to changes in operating conditions. A 1% change in passenger load factor affects the Group's operating result by just under EUR15 million. Similarly, a 1% move in average passenger yield also affects the Group's operating result by “slightly less than EUR15 million.”                       

Fuel costs constitute just over 20% of cost and, according to Finnair, with “price and exchange rate changes,…(presents) one of the most significant uncertainty factors”.

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