Finavia Interim Financial Report 1 January 2009 – 31 March 2009: The number of passengers is falling due to the recession

Air traffic trends

The number of passengers has clearly decreased during the first quarter. International traffic decreased by 7.7% in January–March, compared with growth of 9.5% during the corresponding period last year. Domestic traffic decreased by 9.7%. This decrease followed the 6.5% reduction in domestic traffic a year earlier. The total number of passengers at Finavia's airports decreased by 8.4% (compared with an increase of 3.3% a year earlier).

 

When examining Finland's international air traffic by destination, it is evident that the recession is having a particularly noticeable impact on traffic within the EU. The general reduction in business trips in Europe has led to a 10.8% fall in the number of passengers flying between Finland and the rest of the EU. A year ago, the corresponding figure was an increase of 6.1% in this air traffic. The most resilient category of air traffic during the current recession has been Asian traffic, but traffic to Asia has also decreased by 2.4%, compared with an increase of 27.2% a year earlier.

Airports Council International (ACI) reported that the number of passengers in Europe¹ decreased by 12.3% in January–February. In domestic traffic, the decrease was 17.0% while international traffic decreased by 10.9%. In the airports of the capitals of the Nordic countries ², the development has been similar to elsewhere in Europe: in January–March, total traffic decreased by 12.6%. Helsinki-Vantaa's figure (-7.2%) was clearly the best among the airports of the Nordic capital cities.

The number of landings in Finland's commercial air traffic decreased by 2.6%. One year ago, the corresponding figure was a slight increase (0.4%). The volume of landing aircraft in tonnes decreased by 5.9%, clearly more than the number of landings. This means that the average size of aircraft in commercial traffic has decreased by 3.4%, which is a reflection of the operators’ attempts to adjust to the reduced demand. One year ago, there was a clear increase (+6.2%) evident in the size of aircraft.

Unlike most other traffic figures, overflights in Finland continue to increase sharply. The volume of overflights increased by 8.8% during the first quarter. The increase was sharper than a year earlier, when overflights increased by 5.0%.

According to Statistics Finland, the prices of flight tickets increased in Finland during January–March by an average of 5% compared with the corresponding period last year. Prices decreased in domestic traffic by 2%, while prices in international traffic increased by 8%.

Finavia Group's financial development

1 January – 31 March 2009

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 decreased by 1.7 % during the first quarter compared with the previous year and stood at EUR 83.4 million (84.9). Finavia's turnover was EUR 2.3 million lower than last year, while LAK Oyj's turnover increased by EUR 0.1 million and Airpro Oy's turnover increased by EUR 1.0 million.

The Group's expenses increased by 4.5% compared with the corresponding period the previous year and stood at EUR 64.1 million (61.3). Personnel expenses increased by 7% from the corresponding period last year and stood at EUR 30.6 million (28.6 million). Material costs and purchases of external services stood at EUR 24.2 million – the same level as last year. The largest relative increase, 8.5%, was in "other costs of business operations", which rose to EUR 9.5 million (8.5).

The Group's operating result during the first quarter was EUR 6.9 million, which was EUR 8.5 million lower than the corresponding period last year. Profit during the period under review stood at EUR 3.9 million (12.2 million). Excluding one-off items, the comparable result fell to half of the amount last year and stood at EUR 3.3 million (7.7 million).

Finances of State-owned enterprise Finavia

1 January – 31 March 2009

About 70% of the turnover of Finavia Group directly depends on the development in the number of passengers. The sharp decrease in the number of passengers affected the result of the period under review.

The turnover of the State-owned enterprise Finavia decreased by 2.9% during the first quarter compared with the previous year and stood at EUR 76.5 million (78.8 million). Income from traffic decreased by 5.2%, but commercial income increased by 1.6%, which was one of the bright spots in an otherwise poor first quarter. Income from international traffic decreased by 5.5% and income from domestic traffic was 6.9% lower than last year.

Finavia increased its air transport charges by 1.1% starting from 1 January 2009. Most of the price increase was a result of the increase in the TN payment for air navigation services. A new fee is the PRM payment, which is based on the EU regulation on the rights of the handicapped and movement impaired in air traffic. The PRM payment is EUR 0.20 per departing passenger and is billed together with the price of the flight ticket.

Finavia's expenses increased by 3.8% compared with the first quarter of the previous year and stood at EUR 60.5 million (58.2 million). Personnel expenses increased by 5.2% and stood at EUR 25.2 million (24.0).

The increase in personnel expenses is a result of the general increase in the level of wages. External services and purchases of materials increased by 1% on last year and stood at EUR 25.9 million (25.8). Other expenses were EUR 9.1 million (8.4). The largest single item contributing to the increase in "other expenses" was the 19% increase in municipal engineering fees.

Profit during the period under review stood at EUR 3.4 million (11.9 million). Excluding non-recurring items, the result was EUR 2.9 million (7.5).

Finavia's cash flow from operations was EUR 10.6 million in January–March, compared with EUR 21.9 million in the corresponding period last year.

Group operations

Finavia has reformed its business structure and, as of the start of 2008, operations have started in line with the new structure. Each business operation is responsible for its own offering 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 and is responsible for the infrastructure of the airports and their development.

Airport Operations’ income comprises airport charges, which include, for example, landing fees, aircraft parking charges and passenger and security charges. Income is affected by the number of passengers and landings and the weight of the aircraft.

Airport Operations’ income in January–March stood at EUR 45.9 million (47.9) and was 4.0% less than the corresponding period last year. The business unit’s traffic revenue decreased by 6.2% due to the poor development of passenger numbers.

Building work on the extension to the international terminal at Helsinki-Vantaa Airport is proceeding according to schedule. The first stage will be taken into use in August 2009. Alteration work related to the division of terminals at Helsinki-Vantaa has started in T1 and the building work at T2 is in the planning phase.

The new areas for arriving passengers in the extension of the Kuusamo terminal building were taken into use during the first quarter.

During the period under review, Airport Operations made preparations for the introduction of the so-called "basic airport" concept, which will improve the cost-efficiency and services of small airports. The concept will be launched in all small airports in the summer of this year.

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

During the early part of the year the reduction in traffic has not had as big an impact on the services provided by Air Navigation Operations as on the number of passengers. Air Navigation Operations’ income is mainly comprised of the air navigation charges and route charges. During the first quarter of 2009, the TN units of commercial aviation – on which the air navigation fees of airports are based – decreased by 4.1% compared with the corresponding period last year. In international traffic, TN units decreased by 7.5%, whilst in domestic traffic, TN units increased by 0.8%. This is a result of the fact that Easter, which is a more quiet time than normal in air traffic, fell in March in 2008, whilst in 2009 it fell in April. Commercial aviation service units, which are used as the service indicators for route fees, decreased by 2.7%. Overflights increased by 5% last year and the growth has continued during the early part of this year; overflights increased by 8.8% during the period under review.

Air Navigation Operations’ income was EUR 15.2 million during the period under review (15.3) and decreased by just one per cent from the previous year. In addition to the falling volume, the accrued income was affected by the increase in the TN fee at the beginning of the year.

During the period under review, Air Navigation Operations started measures to improve the efficiency of operations and to develop the provision of services. The most important ongoing projects are the centralisation of briefing services, the structural reform of regional air navigation services and the project to reform airports used jointly by civil aviation and the military (YTY/Fresh).

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. Commercial Operations include, e.g., leasing of commercial spaces in terminals and parking services, as well as shops and cafés.

Income is strongly dependent on total passenger numbers. The services provided vary from airport to airport. Compared with the corresponding period last year, commercial income increased by 2.0% during January–March and stood at EUR 16.5 million (16.2). The development in the turnover of Commercial Operations is affected by the decline in passenger numbers and the effect of the uncertain economic situation on passengers' inclination to buy goods and services. There are many development projects under way in Commercial Operations that are aimed at boosting sales and the range of services, as well as reforms that improve cost-efficiency. The intention of these measures is to reduce the impact of falling passenger numbers on operations.

Finavia's Real Estate Operations are handled by Lentoasemakiinteistöt Oyj. The company offers facilities services to companies operating at the airport and operates as a developer of construction projects and owner of premises located at the airports. Real Estate Operations’ turnover increased by 2.6%in January–March and stood at EUR 2.5 million (2.4).

Airpro Oy develops and provides traffic, airport and travel services for travel and tourism companies, and directly for passengers. Airpro's turnover in January–March increased by 14%, mainly due to new contracts. The turnover for the period under review was EUR 8.1 million (7.1).

Capital investments

The current year's investment plan for the Group totals EUR 125 million. Due to the poor development of air traffic, Finavia has adjusted its investment programme to match the level of demand.

At the present time, the investment programme approved by the Board of Directors is EUR 94 million, which includes EUR 74 million in projects launched during earlier years. Cash flow related to investments stood at EUR 15.5 million during the first quarter, of which EUR 15.2 million were Finavia's investments.

The largest investment is the construction of the extension to the international terminal underway at Helsinki-Vantaa Airport, which is primarily intended to service traffic to the Far East.
The largest site taken into use at the start of the year is the new multi-storey car park at Helsinki-Vantaa Airport.

Outlook for the rest of 2009

In its forecast published in February, Statfor predicted that air traffic in Europe will decrease by 4.9% this year. In an update to the forecast released at the end of March, Statfor reduced its forecast by a further 0.3 percentage points, so that the final forecast is growth of -5.2%. Only in Eastern Europe has the development of traffic been slightly better than this. Statfor also predicts that in 2009, traffic in Finland will decrease somewhat more moderately than average, i.e. by -3.7%.

Forecasting the trends in air traffic for the rest of the year is extremely difficult. According to forecasts published by major research institutes in the field, 2010 will also be challenging for air traffic.

Fianvia has initiated actions to adjust its costs to the weakened demand. Employer-employee negotiations concerning the entire personnel began in March. Finavia group has also adjusted its investment programme in order to secure its cash flow.

By adjustment actions and enhancement of operations, Finavia is seeking to maintain its cost efficiency at a time of declining revenues. In spite of these actions, it is likely that Finavia will fail to achieve its financial targets for 2009.

¹ 41 airports in Europe, which cover 55.7% of the region's traffic.
² Stockholm-Arlanda, Copenhagen, Oslo-Gardemoen and Helsinki-Vantaa.