Interim Financial Report 1 January 2008–31 March 2008

Air traffic trends

The development of air traffic during the early part of the year has been more moderate than last year. Passenger numbers at Finavia's airports increased by 3% in January–March, compared with an increase of over 7% during the corresponding period last year. International traffic continued to grow rapidly and there were 9% (12%) more passengers in international traffic than during January-March of last year. Growth in the number of international transit passengers was also rapid, with an increase during the early part of the year of 25% (34%). This is primarily due to Asian traffic. Domestic traffic, on the other hand, did not increase during the early part of the year. On the contrary, there were 7% less domestic passengers during January-March than last year. Growth in Finland was slightly slower than on average in Europe, as according to ACI passenger numbers in Europe increased by 6.2% in January-February, whilst in Finland growth in January-February stood at 5.6% (8.0%). In Scandinavia growth was faster than on average in Europe: 8.6% (5.0%) in January-February.

Arrivals in commercial traffic are at the same level as during January-March of last year (0%). Arrivals in international traffic have increased by 9%, which is more than a year earlier when growth in January-March was 6%. The number of domestic arrivals has decreased by nearly 8% (5%).

Finavia's air traffic charges will increase by an average of 1% from 2007. The only change in January was an increase in the unit price of the route charge from EUR 38.07 to EUR 40.28. Other changes enter into force as of 1 April 2008 when passenger charges increase by an average of 2% and the INT-INT transit passenger charge falls from EUR 6.10 to EUR 5.11. The change in the INT-INT transit passenger charge compensates for the change that entered into force on 1 September 2007 when security charges started to be charged for INT-INT transit passengers. The security charge will remain at EUR 4.51 in 2008. 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 decreased by an average of 1% (+2%) compared with the previous year. Domestic air journeys were on average 6% more expensive (+9%) and international journeys were 2% less expensive (+1%).

Finavia Group's financial development

Finavia Group comprises the State-owned company Finavia and its subsidiaries. The largest subsidiaries are Finavia's wholly-owned subsidiaries LAK Oyj and Airpro Oy.

The Group's turnover increased by 10% compared with the first quarter of the previous year and stood at EUR 84.9 million (76.9). Finavia's share of the growth was EUR 7.7 million and the rest of the growth came from the growth of Lentoasemakiinteistöt Oy. Airpro Oy's turnover was EUR 0.3 short of the unit's turnover during the corresponding period last year.

The Group's expenses increased by 5% compared with the corresponding period during the previous year and stood at EUR 73.9 million (70.6). Staff costs was 5% higher than during the final quarter of last year, whilst external services increased by 6%; these were the largest increases.

The Group’s operating result was EUR 15.4 million. The result includes the non-recurring item of a capital gain of EUR 4.4 million from the disposal of real estate. The fourth-quarter operational result was EUR 10.9 million (6.2).

Profit before non-recurring items of the period under review was EUR 12.3 million (5.7). This figure comprises an operational result of EUR 4.7 million, a one-off capital gain of EUR 4.4 million and a loss of EUR 1.2 million booked from investment operations.

Finavia’s finances

The turnover of the State-owned enterprise Finavia increased by 11% from the comparable period in the previous year and stood at EUR 78.8 million (71.0). Traffic income increased by 8% and other income by 19%. In traffic income, turnover from international traffic increased by 15% compared with the corresponding period in the previous year. Turnover from domestic traffic decreased by 4% compared with the corresponding period last year.

Finavia's expenses increased by 5% compared with the first quarter of the previous year and stood at EUR 58.2 million (55.5). Staff costs increased by 7%. The growth was due to both an increase in the number of personnel and the general rise in wages. Other expenses grew by nearly 4% in January-March. Municipal engineering charges grew the most, along with repair and maintenance services, which are affected by the general rise in prices. Security check services purchased as external services increased by 4%.

The operating result for the period under review was EUR 14.1 million. The result includes a non-recurring item.

In February, Finavia sold a piece of real estate connected to Turku Airport. A capital gain of EUR 4.4 million was booked for the disposal. Excluding non-recurring items, the operating result for the first quarter increased by EUR 2.1 million and stood at EUR 9.7 million (7.6).

Profit before extraordinary items was EUR 11.9 million (7.9) during the first quarter of the year. Financial items lowered the result. Net financial items stood at EUR -2.2 million (0.8). Financial income fell by EUR 0.6 million and interest expenses increased by EUR 0.6 million. In addition, a one-off write down of EUR 1.2 million was booked from losses in investment operations.

Group operations

Finavia has reformed in business structure and from the start of 2008 operations have started in line with the new structure. Each business operation is responsible for its own offerings and the development of its own operations throughout the whole network of airports. Airports and the regional air navigation services implement services as directed by regional demand.

Airport Operations is responsible for Finavia's network of airports. It provides airport services, is responsible for the infrastructure of airports and their development.

The turnover of Airport Operations comprises airport charges, which include, for example, landing fees, aircraft parking charges, passenger and security charges. Income is affected by the number of passengers and landings and the weight of aircraft. The good development of international traffic during the early part of the year boosted the income of Airport Operations by 11% compared with the corresponding period last year. Income stood at EUR 47.9 million (43.0).

On 2 January 2008, Finavia submitted the documentation to the Western Finland Environmental Permit Authority for revising the environmental permit for Helsinki-Vantaa Airport.

On 15 February 2008, the Western Finland Environmental Permit Authority granted an environmental permit pursuant to the Environmental Protection Act to Helsinki-Malmi Airport. The permit concerns Finavia's operations at the airport.

The launch of the centralised deicing area at Helsinki-Vantaa Airport has been postponed until the autumn of 2008 due to delays in construction work.

The Kuopio Airport lake terminal was completed in January 2008 and Blue White Resort took possession of it on 5 February 2008.

The reconstructed expansion to Kittilä Airport was inaugurated on 14 February 2008.

The start of scheduled air services between Savonlinna and Varkaus was delayed from March until the end of April.

On 25 January 2008, the Finnish Association of Building Owners and Construction Clients RAKLI ry recognised Finavia as the best building developer of the year 2007. RAKLI explains its choice by referring to Finavia's excellent ability to take the needs of its customers into account in building development and manage complex project packages.

Air Navigation Operations is responsible for controlling the use of Finnish airspace and providing air navigation services at Finavia's airports.

The income of Air Navigation Operations is comprised mainly of the air navigation charges and route charges of airports. Air navigation charges are determined on the basis of the so-called TN unit, which is affected by the size of the landing aircraft. During the first quarter, the TN units of international traffic increased by 11% whilst the TN units of domestic traffic decreased by 6%. Due to growth in volume, income increased by 5% and stood at EUR 15.4 million (14.6).

The Continuous Descent Approach (CDA) project was launched at Finavia on 4 March 2008. CDA is intended to increase the use of more environmentally friendly flight methods. The project requires close cooperation between airspace planning, the operational air traffic control and the flight departments of airlines.

Commercial Operations is responsible for the commercial services at Finavia's airports. The services are offered directly to passengers or in cooperation with other service providers operating at the airport.

Income is strongly dependant on total passenger numbers. The services provided vary from airport to airport. Commercial income increased during January-March by 18% compared with the corresponding period last year and stood at EUR 16.2 million (13.7).

Finavia's Real Estate Operations are handled by Lentoasemakiinteistöt Oyj. As a real estate investment company, it functions as a developer of various construction projects and owns buildings. The turnover of the Real Estate Operations increased by 38% and stood at EUR 2.4 million (1.8). The growth came mainly from the hotel owned by LAK Oyj, which was opened in August of last year.

Airpro Oy develops and provides traffic, airport and travel services for travel and tourism companies and directly for passengers. The development of Airpro's turnover during the early part of the year was slightly weaker than during the corresponding period last year. The turnover of the period under review was EUR 7.1 million (7.5). The development of turnover during the early part of the year is affected by the reduction in domestic traffic.

Capital investments

The Group's investments were implemented according to plan. Net investments totalled EUR 16.9 million since the beginning of the year and were primarily expansion projects of the State-owned enterprise.

Organisational changes

Kimmo Ruotsalainen, M.Sc.econ, was appointed as Finavia's Marketing Director starting from 1 February 2008. Kirsti Lehtovaara-Kolu, M.Sc.econ, was appointed as Chief Financial Officer starting from 15 March 2008.

Outlook for the rest of 2008

Finavia estimates that the total number of passengers will increase by 4.2 per cent from 2007 to 2008. In domestic traffic, the figures for the early part of the year indicate that the amount of traffic is lower than during the previous year. International traffic will be boosted, for example, by the new routes that were opened up in the spring of 2007 or that will be opened, both from Helsinki-Vantaa and the rest of Finland. In addition, the frequency of flights along certain routes to Russia will increase.

According to Statfor's short-term forecast, growth in traffic in Europe in 2008 will be slower than in the previous year but growth will still remain at a high level. Statfor forecasts growth of 4.1% for this year, compared with actual growth of 5.1% in 2007. The reasons for the growth include the proliferation of discount airlines and the growth of business flights, as well as falling airfares. According to the abovementioned Statfor forecast, traffic in Finland will increase by 3.6% this year.

Finavia forecasts that air traffic will grow slower during 2008 than 2007. The growth will be the result of international traffic. It was assumed that the reduction in domestic traffic would halt and that it would reach last year's level. We will probably not be able to achieve this target. Nevertheless, we expect that international traffic will develop better than on average in the eurozone because traffic is directed from Finland to Scandinavia, Germany and particularly to Asia.

Based on the development during the early part of the year, Finavia believes it will achieve the growth targets and financial results set for total traffic assuming that the factors of uncertainty connected to general economic development do not materially affect the development of air traffic.

For more information, please contact:
Deputy CEO Ari Haapanen +358 (0)9 8277 2010
CFO Kirsti Lehtovaara-Kolu, +358 (0) 9 8277 2109

¹INT-INT transit passenger, i.e. a passenger who arrives from a foreign airport, continues his or her journey to another foreign airport and spends the time between flights at the terminal area.
²Stockholm-Arlanda, Copenhagen, Oslo-Gardemoen and Helsinki-Vantaa.
³Association of European Airlines (AEA). Other operating costs such as the price of aviation fuel affect the percentage. The airport charges of cheap air carriers have a greater share in the overall costs.
⁴Statfor, part of the Eurocontrol Agency, produces statistics and forecasts on air traffic in Europe and monitors and analyses trends in the aviation sector.
⁵IFR operations (incl. take-offs and landings).