Finnair Capital Markets Day 2016 Going for Profitable Growth · Finnair Capital Markets Day 2016 Going for Profitable Growth Pekka Vauramo, CEO and President 25 May 2016

Finnair Capital Markets Day 2016Going for Profitable Growth

Pekka Vauramo, CEO and President25 May 2016

Juha Järvinenb. 1976, MBA, Chief Commercial Officer as of 1 November 2014. In Finnair’s service since 2012. Mr. Järvinen has extensive experience in managing different services within the airline industry. He served as Managing Director of Finnair Cargo since March 2012, and prior to that he was the Vice President, Ground Handling International at SAS Scandinavian Airlines.

Pekka Vauramob. 1957, M.Sc. (Technology). President and CEO as of 1 June 2013. Mr. Vauramo joined Finnair from Cargotec, a Finnish cargo and load handling company, where he held different management positions between 2007 and 2013, most recently as COO of the MacGregor business area based in Hong Kong. Between 1985 and 2007, Mr. Vauramo worked at Sandvik, a Swedish mining and construction company.

Ville Ihob. 1969, M.Sc. (Technology), SVP Strategy and Resource Management, deputy CEO. In Finnair's service since 1998. Prior to his present position, Mr. Iho was Finnair's COO and previously SVP Resource Management.

2

Introducing today’s speakers

© Finnair | Capital Markets Day 2016

Christine Rovellib. 1974, MBA (Analytic Finance, Accounting), VP Financial Analysis and Strategy, in Finnair's service since 2012. Ms. Rovelli has previously worked for international investment banks focusing on strategic advisory of capital market transactions within the aviation and logistics sector.

Mikko Tainiob. 1979, M.Sc. Econ, VP Ground Operations, Interim COO, in Finnair's service since 2005. Mr. Tainio has worked in various management and expert positions at Finnair, most recently as VP, Head of Group Business Control. He has been leading several Finnair group restructuring projects and was managing the group’s 200M€ cost savings program during 2010-2014.

Pekka Vähähyyppäb. 1960, M.Sc. Econ., eMBA, Finnair CFO as of 17 August 2015. Vähähyyppä joined Finnair from Stockmann, where he held different management positions between 2000 and 2015, most recently as CFO. Prior to that, he worked in financial management for example, at Nestlé’s Nordic subsidiaries, OKO-Venture Capital and A-lehdet Oy.

3

Introducing today’s speakers


Our agenda for profitable growth

4

Topic Speaker time pages

Going for profitable growth CEO Pekka Vauramo 13:00-13:30

Beating the market RASK in selected markets CCO Juha Järvinen 13:30-14:15

Break 14:15-14:30

Finnair's growth drivers: First-rate Fleet, Expanding Network, Smart Partnerships

SVP Strategy and Resource Management, Ville Iho 14:30-15:10

Continuing growth in China VP, Financial Analysis and Strategy, Christine Rovelli 15:10-15:45

Break 15:45-16:00

Expanding the world class airline Interim Head of Operations, Mikko Tainio 16:00-16:30

Driving growth with fleet investments & Building blocks to reach our financial targets CFO Pekka Vähähyyppä 16:30-17:10

Recap and closing remarks CEO Pekka Vauramo 17:10-17:30© Finnair | Capital Markets Day 2016

What have we achieved since 2014 CMD?

In CMD 2014 we shared our mid-term priorities

Our achievements include...

Completion of cost savings program over target, 217 M€ in total

Significantly increased our ancillary sales

Taken delivery of 5 A350’s as the first airline in Europe

Revised our growth plans and launched new long haul routes

5 © Finnair | Capital Markets Day 2016

Maintaining firm cost control

• Fuel efficiency program• Centralised procurement• Personnel productivity

Further cost savingsderived from operational

improvements

• Markedly improved fuel efficiency with the A350

• Lower unit labour costs• Improved overhead cost absorption

Focus on growth is driving additional

cost benefits


We have defined focus areas to achieve our growth and financial targets


Profitable GrowthFleet & Network growth (ASK)

Financial targets

Commercial excellence

Defend RASK and grow ancillaries

OperationalExcellence

Cost discipline and world class operations

Comparable operating EBIT margin of 6%

Adjusted Gearing <175%ROCE min 7%EBITDAR margin

min 17%

Customer experienceOffer best European business class and secure service delivery

TransformationEmbrace and benefit from the business and digital transformation

People experienceEnsure growth by increasing performance and productivity Market share

Customer satisfaction

Personnel satisfaction

Sustainability

Aligned organisational structure supports accelerated growth


We expect to reach our target of doubling Asian traffic already in 2018

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020


Accelerated growth: Asian traffic to double from 2010Available Seat Kilometres

There is still room for growth in Nordic skies

The southern route is getting crowded Helsinki’s advantageous geographic location still stands out

10

Sustainable competitive advantage based on location:

Tokyo – Hamburg

Direct (no service) 9,014 kmVia Helsinki 9,021 km, minimum connection time 40 minVia Frankfurt 9,805 km, +2.5h flight time, minimum connection time 60 minVia Dubai 12,882 km,+4.5h flight time, minimum connection time 75 min


A350s generate excellent customer ratings and clear profitability improvements Long haul business Long haul economy


8.4

8.0

8.9

8.4

8.1

8.98.7

8.6

9.1

7

7.5

8

8.5

9

Overallsatisfaction

Likelihood to re-use

Value for money

A330 A340 A350

8.0 7.9

8.8

8.07.8

8.78.5

8.1

9.0

6.2

6.7

7.2

7.7

8.2

8.7

9.2

Overallsatisfaction

Likelihood to re-use

Value for money

A330 A340 A350

Limited investment required to support accelerated growth

Long-haul capacity step up in 2017: number of A330s not decreasing

Long haul fleet plan in 2014: net addition of one wide body aircraft

per year


0

5

10

15

20

25

2015 2016 2017 2018 2019 2020A330 A340 A350

0

5

10

15

20

25

2015 2016 2017 2018 2019 2020

2014 WB fleet plan Revised WB fleet plan

Num

ber

of a

ircr

aft

Num

ber

of a

ircr

aft

Going for profitable growth

•Modern and efficient fleet•Scale economies in fixed costs•New recruitments reduce unit labour costs

Cost efficiency improvements

•More growth with low CAPEX•We will reach our target of doubling Asian traffic already by 2018

Momentum for accelerated growth

•We have unique levers that enable profitable growth

•Increase in volume drives revenue growth and comparable EBIT improvement

Creating shareholder value


14

Beating the market RASK in selected marketsJuha Järvinen, Chief Commercial Officer


How we will defend our RASK


Leveraging competitive advantage in selected markets

Optimising O&D revenue

Launching new revenue streams

Maintaining margins through next generation Cargo

Our building blocks for revenue growthUnique selling points to create RASK premium


Finnair unique selling propositions

Right of existence

Market RASK

IncreasingRASK premium

These strategic focus markets offer greatest competitive advantageConcentrating on 30 cities and their catchment areas globally


Miami

Xi’an

Beijing

Shanghai

Singapore

New York

BangkokPhuket

Chongqing

ChicagoTokyoNagoya

OsakaSeoul

Delhi

Ho Chin Minh City

Hong Kong

Krabi

Fukuoka

Guangzhou

Toronto

Strategic JB MarketsStrategic Focus MarketsStrategic Home Markets

We are ready to develop the Finnair brand internationally

18

Commitment to Care,

MINDSET: Nordic Boutique

Airline

BRAND ATTRIBUTES: Creative, Fresh,

Quality & Inspirational Joy

VALUES:Courage,

Commitment to Care, Simplicity


New drivers for Revenue Management


Revenue Maximization

Inventory

Ancillary

Loyalty

We have outgrown our home markets, and future growth requires origin & destination revenue management


Business Driver

RASK pressure (growth, competition)

Traffic growth, more connecting flows

LCC competition, fenceless fares

Industry trends: RM science, NDC, ancillary

growth

Current system support & stability

O&D RM Motivation

Significant revenue opportunity vs. current

setup

OD level forecast & network optimization

Advanced buy-down prevention

Regain competitiveness, increased future proofing

Decrease risk of an outdated system

LOW YIELD, LEISURE HIGH YIELD, LOYAL-CORPORATE

DIR

ECT

SA

LES

INTE

RM

EDIA

RY

e.g. Nordic Families e.g. Nordic Business

e.g. Asian Vacationers

e.g. Chinese Business

Digitalisation helps us increase average revenue per passenger

DEFEND

INVEST


Digital touch-points will increase our direct sales opportunities


8.210.2

0

5

10

15

2014 2015

Ancillary revenue per pax, €

We have an attractive ancillary portfolio...

Wi-Fi/wIFE onboard & new ancillary platform

content(10/15-)

New baggage conceptwith Light fare (3/15)

Long-haul economy comfort

seats (12/14-)

Finnair Sky Bistro andPreorder meals

(11/14-)

Finnair mobile app (11/14-)

Lounge pass (8/2014-)

New products

Upgrade products(10/2014)

Finnair Plus point payment

Advanced seat reservations (11/2013)

Technology & distribution


23

... And aim to increase ancillary revenue by 46% per passenger

Time to Think booking products

GDS expansionTour operator cooperation

NDC technologyIBE developmentExtended mobile dialogue

Finland Stopover products

Inflight travel services:

Insurances, hotels, cars

Expanded omni-channel

Finnair retail operations

New products

Technology & distribution

10.214.9

0

5

10

15

20

2015 2018 target

Ancillary revenue per pax, €


Digital touchpoints help build customer loyalty....


... And increase share of wallet


X 20AVERAGE REVENUE

X 10,4AVERAGE REVENUE

X 5,8AVERAGE REVENUE

X 1,4 AVERAGE REVENUE

AVERAGE REVENUE

All FINNAIR PASSENGERS

Average revenue ratios as of 2015

We want to capture more of our international customers’ spend…


... By offering Finnair branded dynamic packaging


• Motivation based, seamless flow: dream – discover – buy

• Premium access for personalised tier member & flight crew recommendations & holiday planning tools

• Innovative payment & ancillary service options

• Unique Nordic Experience • New earn & burn concept• Exclusive access to benefits• Campaign events

Hassle free, easy to buy Quality, Creative, Fresh & Inspirational joy

Exceptional loyalty benefits

• Smooth transfers and greater flexibility cross the entire oneworld and Finnair partner network.

• Hotels, transfers, excursions & events

Leisure package based on extensive network

We aim to offer the best business class experience

29

• Modern A350 and A330 cabin experience• Wi-Fi available on all Airbus fleet

• Best European Business Class product • Signature chef & sommelier• Improved meal concepts

• Best European Business Class service• Unique Nordic Customer Experience• Renewed Finnair Plus concept

Aircraft Interior Inflight Product Customer Service & Dialogue

• Renewed Airbus narrow body experience• Additional seat capacity • Enhanced cabin experience

• Improved meal concepts in economy class• Enhanced inflight elements: e.g. Long haul IFE entertainment, Marimekko for Finnair elements, Cabin section concepts

• Contact center services renewed• Personal proactive digital service

Best EuropeanBusiness Class* © Finnair | Capital Markets Day 2016

*Of European carriers, long haul business

30

Cargo is a significant driver for Finnair’s international success


Cargo is a significant driver for Finnair’s international success: Shift away from bulk to speciality is the key margin driver


Cargo contributionFinnair Cargo provides

40% margin contribution to the Finnair Group.

Key marketsSelected strategic focus markets, yield premium in specialized product

segments.

New terminalNew COOL Nordic Cargo Terminal enables state-of-the-art hub logistics and reduces Cargo unit

costs.

Product specializationGrowth of e-commerce trading and specialized

cargo products

Competitive advantage

Quality and fast delivery

Improvements in cost efficient automation increase our share of higher yielding speciality products


Special temperature

areas to support special

cargo products

Warehouse automation to

improve efficiency and quality

How we will defend our RASK

• Finnair aims to beat the market RASK from the strategic focus markets

Leveraging competitive advantage in selected

markets

• Attractive ancillary portfolio in place, aim to increase sales per pax by 46%

•Launching new revenue streams

Direct Business will expand our digital touch-

points

• Next Generation COOL Nordic Cargo Terminal • Focus on higher yielding speciality products

Maintaining margins through next generation

Cargo


Finnair's Growth Drivers: First-rate Fleet, Expanding Network,

Smart Partnerships Ville Iho, SVP Strategy and Resource management


Finnair’s natural competitive advantage is in North-East Asia & strategic focus markets

9,3 MillionOD Pax, CAGR

2,7%**

66 Million OD Pax, CAGR 2,9%

42 Million OD Pax, CAGR 4,9%

70 Million OD Pax*, CAGR 4,4%


Existing destinationLeisure destinationCompetitive area

Fukuoka

GuangzhouMiami

Xi’an

Beijing

Shanghai

Singapore

New York

BangkokPhuket

Chongqing

ChicagoTokyoNagoya

OsakaSeoul

Delhi

Ho Chi Minh City

Hong Kong

Krabi

35

OD pax source: DDS Reported + Estimated Passengers, Bi-Directional Total, Travel Period 2015RPK Traffic Growth (2014-2034 CAGR) between Continents Source: Airbus Global Market Forecast 2014-2034

*Excluding Intra-regional Origins/Destinations in Russian Federation**2015 Finland - Europe market included 9 317 274 origin-destination pax with a growth of 2,7% vs. last year (Source: DDS).

Note. This data is aligned with Intra Western-Europe CAGR 2.7% from Airbus GMF 2014-2034**24h rotation estimated with maximum payload & WB average range; 8500 kilometres, use only for planning purposes

Competitive area vs. Middle –East carriers, compared based on distance in great circle kilometres, e.g. BOD-HEL-BKK vs. BOD-DXB-BKK© Finnair | Capital Markets Day 2016

Smart Partnerships - Joint businesses have created market coverage & share in Finnair’s key markets

36

SJB market share: 21%

AJB market share: 25.8%

Atlantic Joint Business

Siberian (Europe-Japan)

Joint Business



A350 drives increased efficiency in the current bank structure


Current fleet plan enables ASK CAGR of 8-10% in 2016-2018

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015 2016 2017 2018

A330 / A340 A350 Narrow Body fleet - Base Narrow body fleet - Growth© Finnair | Capital Markets Day 201638

Available Seat Kilometres by fleet type 2014-2018

Capacity set to grow with long haul expansionFaster growth in long haul More feeder capacity to accommodate long

haul growth

39

Seats, Mill.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Planned growth Base growth plan

Market Growth* Estimated Market Growth

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Planned growth Bear case option

Seats, Mill.


Unit costs are set to decline

Fleet modernization and aircraft up gauging will decrease CASK

900 new recruitments drive lower labour costs, competitive terms in new CLA’s


CASK without growth or

modernization

201820172016

Fleet modernizationAvg. seat nbr growthAC growth

CASK -8%

* Excluding capital cost**Cabin crew and pilots

0

200

400

600

800

1000

1200

<5 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-

2016 2018H

eadc

ount

, ca

bin

& p

ilots

Average cost**to decrease by 9% by

2018

Profitable incremental growth even with larger than expected decline in unit revenues & limited market access

41

Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

2016 2017 2018

Keep 2 x A330 - Fuelprice 450 USD

Keep 2 x A330 - Fuelprice 450 USD &route revenues -5%

Keep 2 x A330 as WBspare

Wet lease out 1 xA330, 1 x WB spareJa

n

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

2016 2017 2018

Includes only markets where Finnair currently has accessRequires access to new markets

Target case scenario Bear case scenario

ASA 17

ASA 18

ASA 19

NewS17 S18 S19

W18 W19 W19


EBIT

in

crem

enta

lcu

m

EBIT

in

crem

enta

lcu

m

We can adjust our growth according to market conditions without locking ourselves to outdated assets

All-Airbus wide-body fleet delivers strong economic benefits

Average fleet age vs peer European network carriers


Aircraft Type

7Airbus A319 2

Owned2 Leased

6Airbus A320 4

4Airbus A321 7

3Airbus A330 5

5Airbus A340(3) 0

Airbus A350(4) 2 2

1. Finnair fleet as of 30 March 2016, excluding Embraer fleet operated by Norra2. Owned or finance lease3. Will be phased out between H2 2015 and 2017, being replaced by the A3504. Total orders: 19; 7 by the end of 20165. Reported average fleet age for peers, as of: 31 March 2016 for Finnair and Aer Lingus and Air France-KLM, 9 Nov 2015 for IAG; and 31 January 2016 for SAS

11.8

11.7

11.6

11.1

9.2

0 5 10 15

Lufthansa

SAS

Air France-KLM

IAG

Finnair14.7

avg. age

13.6

9.3

6.4

10.9

0.3

Flexible assets – Fuel efficient, modern fleet in all market conditions Ability to scale down without one-off losses


0

10

20

30

40

50

60

2016 2017 2018 2019 2020 2021 2022 2023

Nu

mb

er o

f A

C

Fleet plan Maximum flexibility

0

5

10

15

20

25

30

2016 2017 2018 2019 2020 2021 2022 2023

Nu

mb

er o

f A

C

Fleet plan Maximum flexibility Lease option

#15

#26

#16

#17

#55#53

Wide body fleet flexibility 2016-2023 Narrow body fleet flexibility 2016-2023

Finnair's growth drivers: First-rate Fleet, Expanding Network, Smart Partnerships

•Modern fleet and streamlined organisation and well functioning network model Foundation in place

•Growth potential in new and current markets, supported by partnershipsMarket opportunities

• Favourable unit cost development with fleet renewal and growth

Scalable resources & assets

• Adaptability to changes in external environmentFlexibility


45

Continuing growth in ChinaChristine RovelliVP, Financial Analysis and Strategy


Finnair in China: facts & figures

46

Development of Finnair service to China

Shanghai (2003)

Beijing (1988)

Hong Kong (2002)

Chongqing (2012)

Xi’an (2013)

Guangzhou (2005, 2016)

Source: SRS

+20% growth since 2010


Capacity growth since 2010

Increasing demand from secondary cities

Where do people go from Europe?Number of passengers, 2015

Who takes them there?Number of seats Europe-China 2015

47

Shanghai28 %

Beijing28 %

Hong Kong28 %

Guangzhou6 %

Wenzhou3 %

Chengdu3 %

Hangzhou1 %Chongqing1 %

Wuhan1 %Nanjing

1 %

Source: DDS

CA 25.2 %

AF-KLM 17.3 %

LHG 15.7 %

CZ 8.6 %

MU 7.8 %

TK 6.5 %

IAG 4.7 %

AY 4.6 %

HU 3.3 %


Capacity growing to meet demand

Top Chinese carriers to Europe2015 seats

48

Source: DDS

Top European carriers to China2015 seats

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2011 2012 2013 2014 2015

Seats (m)

LH AF-KLM TK BA AY

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2011 2012 2013 2014 2015

Seats (m)

CA CZ MU HU

64%19%


Demand growth: more than just GDP

GDP growth drives passenger demand… …which tracks an economic development curve

49

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012 2013 2014 2015 2016

RPK growth GDP growth

Source: IATA, World Bank, OECD, United Nations Population Division, Airbus Global Market Forecast

USA

ChinaIndiaRussia

UKFinland

Hong Kong

Singapore

JapanSouth Korea

Thailand

00.5

11.5

22.5

33.5

4

0 10,00020,00030,00040,00050,00060,00070,00080,000

Trip

s/ca

pita

2015 GDP/Capita (USD)80,000

$13,000


Demand for air travel in China expected to continue...China’s economy is still growing…

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0% China GDP GrowthWorld GDP growth

…and demand for air travel is expected to continueForecast growth in passenger markets

50

Source: Oxford Economics, OECD, IATA monthly statistics

8.9%8.3%

3.8%

2.4%

6.3%

5.0%

2.9% 2.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

India China Russia Brazil

Next 5 years

Next 20 years


...with Europe still a top destination

Preferred international destinations

0%10%20%30%40%50%60%

Forecast inbound tourism from China

020406080

100

Tour

ists

(m

)

2015E2025E

51

Source: equity research


Domestic economy impacting traveler behavior…Yuan vs USD Impact on travel plans

26%

29%

30%

52%

0% 20% 40% 60%

Postponetravel

Changedestination

Shorten trip

Spend less

52

Source: Bloomberg, equity research add date?

0.1460.1480.15

0.1520.1540.1560.1580.16

0.1620.164


…but international trips still important

Average # of outbound trips in next 12 months

2.6

2.1

0

0.5

1

1.5

2

2.5

3

April 2015 October 2015

Absolute # of outbound trips in next 12 months

33%51%

29%28%

38%21%

0%

20%

40%

60%

80%

100%

120%

April 2015 October 2015

>Three Two One

53

Source: equity research


Asia remains best focus for Finnair

54

Growth in passenger journeys by region, 2015-2035

North America:

2,8%

Latin America:

3,8%

EU: 2,1%

Middle East: 4,7%

Africa: 4,5%

Asia-Pacific: 4,6%

Source: IATA, Oxford Economics


Long term growth continues: summary

55

China has been, and continues to be, an important market for Finnair

The Chinese market for air travel is growing; so is the competition

Economic events have impacted traveler behavior; propensity to travel still increasing

Finnair believes that China remains the market with the best growth potential, and strategic fit


56

Expanding the world class airlineMikko Tainio


Expanding the world class airline

• Finnair today – World class operational quality and leader in sustainability

• Maintaining world class operations in growth phase– Resources geared for growth– Synchronized growth agenda – Helsinki Airport in 2020


World class operational performance today: Finnair’s network model calls for excellent operational reliability

Arrival punctuality in top 5 in 2015* World class performance

• 99% connection reliability –only 1 out of 100 Asia-Europe passengers are rerouted in Helsinki

• 99.6% regularity – only 0.4% of scheduled flights are cancelled

• 99.4% of bags delivered on time – only 6 out of 1000 bags are left behind

80

82

84

86

88

90

92

94

96

*2015 AEA & OAG statistics used as baseline, with selected non-network carriers excluded © Finnair | Capital Markets Day 201658

Sustainability contributes to the bottom line, and decreases risks

Cost efficient use of resources, Managing risks

Leading airline in corporate responsibility

59

IEnvAIATA Environmental Assessment Program

EES+ Energy Efficiency System

Risk-based evaluation of aspects and

impacts

Solid target setting based on

environmental and economical impacts


60

Gearing up the resources for growth and maintaining world class operations



Aircraft

We have a detailed plan to gear up our resources for growth

Human resources

Facilities Partners Helsinki Airport

Resource flexibility is key in potential growth plan adjustments

Synchronised 2020 growth plans with HEL Airport - Smooth transfers for our focus markets

TOP 10 Airports in the world, and 2nd in Europe

Best airport in Northern Europe

Helsinki Airport is one of the most competitively priced airports for transfer passengers


Process improvements ensure reliability and customer experience during construction period

63

Dealing with gate capacity

• Enhance gate use through improved ground operations

• prioritisation of connecting flights

Ground operations efficiency

• Renewed agreement with Swissport improving quality

Steering airport

processes and partners

• Joint Hub control with all airport operators

Border and Security

resources and processes

improvement• New Express

Connection • Increased staffing

agreed

Runway & taxiway capacity

enhancements• Runway

performance project

• Faster A350• Flight prioritisation

Construction project follow

up

• Continuous follow up through various co-operation bodies

• Common focus on enhancing customer experience

Improving bus transport

experience

• Added and improved bus capacity

• New busing concept

• Improved bus terminal facilities

The minimum connection time for transfer passengers will remain at world class 40 minutes© Finnair | Capital Markets Day 2016

Expanding the world class airline

•Finnair is one of the most operationally reliable and sustainable airlines in the world

World class operational quality and leader in

sustainability

•We aim to keep our reliability high even through the growth phase

•We have the scalable, cost efficient resources that are required for accelerated growth

Detailed plan to gear up for growth

•The Helsinki airport is an asset to Finnair•Airport expansion and process development is synchronised with Finnair’s growth plans

Growing the hub without disruption


Driving growth with fleet investments & building blocks to reach our financial targetsCFO Pekka Vähähyyppä


Today’s agenda

• Driving growth with fleet investments– Update on funding progress– Diversified financing options manage leverage

• Building blocks to reach our financial targets– Where will the planned growth take Finnair? – What impact will it have on the financial statements?


67

Driving growth with fleet investments


0

5

10

15

20

25

30

35

40

2015 2016 2017 2018 2019 2020

A319 A320 A321

4%

7%1% 1%

0

5

10

15

20

25

2015 2016 2017 2018 2019 2020

A330 A330 flex A340 A350

8%

15%

5%

11%

Capacity increases by new aircraft and upgaugingLong-haul capacity to grow with A350 deliveries

Larger aircraft, additional seats in short-haul


Capacity growth( seats per year, %)

Funding secured for first 8 A350sOver one billion euros of secured financing since Q3/2015

69Net investments Signed SLB’s &

divestments

Net confirmed investments 368 M€


A350 funding

Year Delivery SLB JOLCO Cash/debt

2015 3 2 1

2016 4 1 2 1

2017 4 1 3

2018 1 1

Financing mix preserves flexibility while managing leverageStrong balance sheet, negative net debt Diversified financing options available


-60

-40

-20

0

20

40

60

80

2015 Q1 2016

Equity ratio Gearing Adjusted gearing

• Senior bond market• Hybrid bond market• A350 JOLCOs• Other aircraft debt financing• A350 Sale and leasebacks

• New A321 narrow body aircraft will be leased

32.5

-35.1

70.7

Finnair has one of the lowest leverage ratios in the industry

Median:3,7x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

Norwegian Aeroflot Emirates SAS Air China Air France Lufthansa IAG Finnair easyJet Ryanair


Net lease-adjusted debt / EBITDAR (31/12/15)

Calculated using entire company reported numbers. Adjusted for leases @ 7x aircraft rental expenseCurrencies converted into Euros at LTM average exchange rates for the period. Carriers LTM as of December 31, 2015 except forEmirates (March 2015). Source: Company financial statementsHybrid bond calculated as debt for AY and SK

72

Building blocks to reach our financial targets


What was said earlier today...


Why accelerate growth plans?Estimated ASK growth; CAGR 8-10 %

2015 Cost base 2,230 M€, ASK 31,800 million

74

Fuel; 600

Variable; 1030

Aircraft; 200

Fixed; 400


Growth reduces overhead, unit costs

Fixed costs ~18% of cost base

0.00

0.50

1.00

1.50

0

10,000

20,000

30,000

40,000

50,000

2015 ASK31800

What IF ASK40000

ASK millions FIXED CASK c

-20.5%

Fleet investments support unit cost improvement and higher productivity

Airbus A350 XWB: Lower costs, more passengers**

• Fuel consumption decrease up to 25%

• Other operational cost decrease in mature operations up to 15%

• Estimated aggregate annual seat cost savings of c. 7-8 MEUR per aircraft

• 10-15% more capacity, ~30 seats per aircraft

**Compared with A340 aircraft, operational cash out expenses per seat, per year / normalized traffic

75

Fleet modernization and aircraft up gauging will decrease CASK*

CASK without growth or

modernization

201820172016

Fleet modernizationAvg. seat nbr growthAC growth

CASK -8%

2015 CASK

© Finnair | Capital Markets Day 2016* Excluding capital cost

Reduction in average seniority lowers labour unit costs

Flying personnel unit costs set to decline Reduction in average seniority

• Approximately 900 recruitments by 2018, of which 600 cabin crew

• Average flying personnel cost to decrease by 9%

• What IF 2015: CASK decrease of 14% with 9% decrease in average pay and increasing share of new employees


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0102030405060708090

100

2015 Average staffcost

What IF 9 % lowercost and more new

recruits

Staff cost/person CASK, c

-14%

Increasing capacity, holding overhead steady reduces overhead unit costs

Cost base development


• Growth reduces fixed unit costs

• New recruitments reduce the average cost of flying personnel

• A350 significantly more economical to operate than A340

• New WB and NB aircraft increase the aircraft costs accordingly

• Investments in customer experience

• Investments in digitalization

Key growth components

• ASK growth 8-10 % CAGR

• Finnair will beat the declining market ticket RASK in strategic focus markets

• Ancillary revenue per pax will grow to 15 €; positive revenue impact ~50 M€ with 2015 pax levels

• New Cargo terminal will boost cargo revenue and efficiency

• Suntours will continue positive development

Summary – Solid structure for profit improvement

•1 billion euros of secured funding since Q3 2015•Solid balance sheet support the coming investments

Strong financial base for growth

•Ticket revenue will beat market RASK•Ancillary revenue contribution to grow significantly

Revenue growth

•Modern and efficient fleet•Scale economics in fixed costs•New recruitments reduce unit labour costs

Growth lowers unit costs


Finnair is committed to delivering onprofitable growth strategy

•Modern and efficient fleet•Scale economics in fixed costs•New recruitments reduce unit labour costs

Cost efficiency improvements

•More growth with low CAPEX•We will reach our target of doubling Asian traffic already by 2018

Momentum for Accelerated growth

•We have unique levers that enable profitable growth

•Increase in volume drives revenue growth and comparable EBIT improvement

Creating shareholder value



Thank you

Documents

Finnair Capital Markets Day 2016 Going for Profitable Growth · Finnair Capital Markets Day 2016 Going for Profitable Growth Pekka Vauramo, CEO and President 25 May 2016