Interim report Q1 2007

Air traffic trends

The start of the year has been relatively busy in air traffic. Passenger numbers have grown at Finavia’s airports by more than 7 per cent during January–March. The number of international passengers, in particular, has increased: nearly 12%. The number of transit passengers increased by 21% as a result of the strong growth in traffic to Asia. The domestic development has been slower and passenger numbers have only increased by around one per cent. Passenger numbers at European airports have increased slightly under 6 per cent and in Scandinavia the growth has been 5 per cent.

The number of commercial traffic landings has hardly changed in total compared with the corresponding period for last year. International traffic landings have increased by over 6%, but the number of domestic landings has decreased by five per cent.

Finavia’s air traffic charges increased by an average of 5% on last year, as of 1 January 2007. The change is solely a result of an increase in the security charge. The security charge was increased from EUR 3.25 to EUR 4.51 for each departing passenger. The total share of all airport charges of operating costs of the largest air traffic operators in the EU is 4–8 per cent .

According to information from Statistics Finland, the prices of airline tickets increased by an average of 3% compared with the previous year. Domestic air journeys were on average 11% more expensive and international journeys 1.4%.

Financial development

Finland’s gross production grew by 5.5% in 2006. According to the Ministry of Finance’s economic survey, domestic economic growth is, however, slowing to an average rate of growth close to that of the Eurozone and is expected to be 3 per cent this year. Economic growth in the Eurozone was 2.6% last year and strong growth is expected this year too, in the region of 2.3–2.5 per cent.

The world economy grew by around 5 per cent last year, according to Etla, the Research Institute of the Finnish Economy. Asia continued to be one of the most important areas of economic growth and China and India in particular are significant growth engines. China’s role continues to grow as the growth in the country's gross production is clearly exceeding the growth in production of the rest of the world.

The general development in gross production is also having a significant impact on Finavia's finances. The growth in international demand and strong economic growth in Asia is a positive development from Finavia’s perspective, as this increases international air traffic.

Finavia Group’s finances

The Group’s turnover increased EUR 7.8 million compared with the previous year’s first quarter. Of this, Finavia’s share is EUR 6.5 million and the remaining share is growth from the operations of Airpro Oy.

The Group’s expenses increased by EUR 7.3 million compared with the previous year’s first quarter. Of this, Finavia’s share is EUR 5.9 million and the remaining increase in expenses is a result of the growth in staff costs of Airpro Oy.

The Group’s operating result improved by EUR 0.5 million. The result for the entire Group was EUR 5.6 million and it improved compared with the previous year by EUR 1.2 million.

Finavia’s finances

Turnover increased 10% compared with last year’s first quarter. Finavia's traffic income increased 11% and other income by 9%. During the first quarter, land was sold to Finavia’s subsidiary, Lentoasemakiinteistöt Oy, for which a sales profit of EUR 2.5 million was recorded.

Finavia’s expenses also increased by 10% compared with the first quarter of the previous year. Staff costs increased by 9%, other expenses by 10% and depreciation and amortisation expenses by 2%. The increase in staff costs is explained by the 0.8% growth in the number of staff and the general increase in the salary level. In addition, the pension contribution percentage rose at the start of 2007 by 3%, which explains the increase in staff costs by EUR 0.7 million. Other expenses increased in January–March compared with the corresponding period for last year by EUR 3.9 million, of which the share accounted for by external security services is EUR 3.1 million.

The Group’s operating result increased EUR 3.0 million compared with the previous year’s first quarter. The operating result from operations excluding one-off items improved by EUR 0.5 million.

In January, Finavia’s long-term investments were sold and this accrued capital gains of EUR 1 million.

Finavia’s result in the first quarter was EUR 7.9 million, which was an increase of EUR 3.9 million compared with the first quarter of the previous year. If one-off items (EUR 3.5 million) are deducted, the result was EUR 0.3 million greater compared with the corresponding period for the previous year.

Airport operations

Airport operations are financed through airport charges, which include e.g. landing fees, aircraft parking charges, passenger and security charges.

Turnover for airport operations increased 14% compared with the quarter for the previous year.

The number of departing passengers grew by 7.6% at the start of the year compared with the corresponding period for the previous year. The increase was solely from international traffic as departing passenger numbers for domestic traffic remained at the level for 2006. This development was also apparent in income from passenger charges. Income from international passenger charges increased by EUR 0.8 million.

Raising the security charge increased turnover by an additional EUR 2.9 million, but the costs for security operations increased more than this amount during the same period.

In addition to the development in passenger numbers, the number of landings and weight of aircraft also had an impact on the income of airport operations. The trend for commercial landings in domestic traffic has been weaker than expected. Both the number of landings and landing tonnes have decreased for domestic traffic on the corresponding period for last year. Income from domestic landing fees has, however, remained at the same level compared with last year’s first quartile. However, the development in international traffic has been slightly more positive than expected and landing tonnes, for example, have increased by nearly 13%. Income from international landing fees has been 14% better than the previous year as a result of the average increase in size of aircraft.

Air navigation operations

Air navigation operations are financed through charges for the airport’s air navigation service (TN) and en route charges. Income is affected by the number of flights and landings, the kilometres flown and the aircraft’s weight.

The number of landings for commercial traffic and kilometres flown are almost at the level of the corresponding period for last year. Whereas the aforementioned growth in the average size of aircraft has impacted on the growth of service units and landing tonnes. The kilometres flown and TN payments for domestic traffic have decreased on the previous year. Overflights and overflown kilometres have, on the other hand, increased. It is apparent from the growth figures that the average aircraft size for overflights has grown too, although not as strongly as for other traffic.

Income from air navigation for domestic traffic is 4.1% less than last year's income level. However, income from air navigation for international traffic grew 6% on the corresponding period for the previous year. Overflight income has increased at almost the same pace as other international traffic.

Other operations

Turnover for Finavia’s other operations mainly consists of income from car parks, rental income and sales income from shops and public service tasks sold to the State. In spite of the increase in costs, turnover for public service tasks sold to the State has remained at the same level as in the corresponding period for the previous year, but other items have increased by 8%. The growth is primarily a result of the growth in passenger numbers.

Financing

The Group’s operating cash flow strengthened during the early part of the year by nearly EUR 5.6 million compared with the corresponding period for the previous year. The increased turnover and sales of finance assets strengthened the operating cash flow. The Group’s investments increased during the corresponding period by EUR 9.2 million to EUR 19.7 million.

At the start of the year, the Finavia Group took out a new loan for EUR 17.4 million, which Lentoasemakiinteistöt Oyj used to finance the hotel property being constructed at Helsinki-Vantaa Airport.

The Group’s liquidity improved during the start of the year by almost EUR 3.0 million compared with the situation at the end of last year.

Environment

In December, the European Commission published a draft directive that would gradually include air carriers within emissions trading starting in 2011. Emissions trading does not concern Finavia but will affect the operations of its customers. Finavia is supporting the Ministry of Transport and Communications in the preparations concerning the issue and independently follows the issues concerning the climate. In the discussions at the EU at the beginning of 2007, all the Member States supported the start of emissions trading.

Finavia decided to draw up an energy saving and climate programme for its own operations by the end of the year. Finavia’s environmental issues are reported in more detail in the environmental report that has just been published.

Prospects for the end of 2007

The growth in the world economy is expected stay strong this year and next year as well. Finland’s economic growth is slowing and is expected to be closer to the average growth in the Eurozone, i.e. in the region of 3%. The price of oil, which has a considerable impact on costs for air carriers, is expected to be slightly lower this year and in 2008 than the average for 2006.

According to Statfor’s short-term forecast, European traffic will grow by 3.9% in 2007. The reasons for the growth include the drop and levelling out in the price of oil, the decrease in the cost of air tickets, the growth in cheap air carriers and business flights and economic stability in Europe. According to the forecast, traffic in Finland will increase by 2.5% in 2007. Finavia estimates that that traffic will grow by even more than this forecast.

Finavia forecasts that the number of air passengers will grow from 2006 to 2007 by 7.8 per cent, which is slightly less than the original estimate. The number of commercial traffic operations is expected to grow by 5.5%. The figures for the start of the year for domestic traffic demonstrate that the set estimate for traffic growth will hardly be attained. On the other hand, international traffic seems to be developing better than expected, which means that international traffic will most likely make up for the slower development in domestic traffic. The new routes starting up in spring 2007, for example, to Europe and increased services to some destinations will increase international traffic.

Finavia will not change its estimate for the profit for the year and under normal conditions will achieve the profit target for 2007 of EUR 27.3 million.