Finavia Interim Report, January 1, 2010-March 31, 2010
Summary of key figures for the first quarter of 2010
In the following, the figures are compared to the Civil Aviation Administration Group's key figures for the first quarter of 2009 (in parentheses).
- Finavia's turnover decreased by 6.7% to EUR 77.8 million (83.4 million)
- Passenger numbers increased by 0.3%
- Operating result, excluding nonrecurring items, was EUR 5.8 million (6.3 million)
- Result before taxes was EUR 18.1 million (4.2 million)
- Cash flow from operations was EUR 15.7 million (11.8 million)
- Finavia's equity ratio* was 41.2% (65.0%)
*Balance sheet revalued as of January 1, 2010
CEO's review
Finavia performed according to expectations in its first quarter as a public limited company. The demand for air traffic remained low, as did price levels, which reduced the company's turnover. Launched a year ago, Finavia's operating efficiency program proved to be successful, and the company recorded a positive operating result in the first quarter of 2010.
Financial result between January 1 and March 31, 2010
The Finavia Group's turnover decreased by 6.7% to EUR 77.8 million (EUR 83.4 million in the first quarter of 2009). The operating result, excluding nonrecurring items, was EUR 5.8 million (6.3 million), and the result before taxes was EUR 18.1 million. The result includes a total of EUR 14.0 million of nonrecurring capital gains from the sale of assets. The revaluation of balance sheet items had a considerable effect on the depreciable basis as of January 1, 2010, reducing depreciation by EUR 4.3 million in the first quarter.
Cash flow from operations was EUR 15.7 million, compared to EUR 11.8 million in the first quarter of 2009. While the fees collected from customers decreased considerably, the charges for operating expenses decreased even more. Despite the write-downs at the beginning of the year, Finavia's equity ratio remained at a good level: 41.2%.
Compared to the first quarter of 2009, the Finavia Group's operating expenses decreased by 1.5%, from 64.1 million to EUR 63.1 million. This was largely because of reduced expenses for external services, which decreased by 17.9% compared to the first quarter of 2009, with bought-in security services showing the largest reduction.
Staff costs increased by 4.8%, mainly because of raises as well as the increased amount of person-years as a result of expanded operations at Airpro, Finavia's subsidiary.
Business areas
The Finavia Group's operations have been divided into four business areas and related support operations. This model is based on a practice adopted by European airport operators. Management and financial reporting in the Finavia Group are based on this same division of responsibilities between the different business areas.
Airport Operations is a business area that consists of airport services covered by Finavia's license as well as commercial services provided primarily for passengers by Finavia or its business partner network. The Airport BA is responsible for services provided for air carriers at Finnish airports, such as runway and terminal maintenance as well as ramp services, security checks and passenger services. Commercial operations include, for example, parking services, shops and cafeterias as well as the leasing of commercial spaces in terminals.
Air Navigation Services control the use of Finnish airspace and provide the related en-route services and air navigation services at Finavia's airports.
Real Estate Operations consist of real estate companies that offer facilities services to companies operating at the airport. The most significant real estate company is Lentoasemakiinteistöt LAK Oyj, which operates as a property owner and developer. Most of the turnover in real estate operations is generated outside the Finavia Group. The parent company owns the airport terminals and other production facilities, which are maintained by The Airport BA.
Airpro, Finavia's subsidiary, constitutes an independent business area. Airpro develops and provides traffic, airport, and travel services for logistics and tour operators and directly for passengers.
Group operations and centralized services, as well as other minor operations, are reported under other business operations.
Intra-group transactions between the different business areas are adjusted through the eliminations item.
Business area performance
Airport
The turnover for the segment decreased by 9.0% to EUR 55.3 million (EUR 60.8 million in the first quarter of 2009). The operating result was EUR 21.7 million (12.6 million). A total of EUR 10.8 million in nonrecurring capital gains were recorded in this business area in the first quarter of 2010, which improved its result.
After a long negative trend, airport operations saw a turn for the better in March. Compared to the first quarter of 2009, passenger numbers increased by 0.3% in the first quarter of 2010. The number of international transit passengers at Helsinki Airport increased by 16.1%. Nonetheless, the total number of landings in Finavia's airports continued to decrease, by 7.4% compared to the first quarter of 2009. The reduction of airport, air navigation and security charges by around 10%, effective since September 20, 2009, will affect the income for 2010.
A new brand, Lapland Airports, was introduced to standardize the products and services offered by Finavia's six airports in Northern Finland. With this new brand, Finavia seeks to increase the international visibility of Lapland's airports and improve their accessibility.
Helsinki Airport was granted the Skytrax World Airport Award for the best airport in Northern Europe. Helsinki Airport was ranked the fourth best airport in Europe and the fourteenth best airport in the world.
The profitability of commercial operations improved in the first quarter of 2010. The opening of new shops generated new income, as did new rental facilities in terminals. The Hello concept for cafeterias will be expanded to Rovaniemi Airport by 2011; cafeterias based on this concept have already been established in Kuusamo and Turku.
Air Navigation Services
The turnover for Air Navigation Services decreased by 11.6% to EUR 13.2 million (EUR 14.9 million in the first quarter of 2009). The operating result was EUR -2.1 million (-3.0 million).
The increase in passenger numbers in March was not reflected in the total number of operations, which for its part decreased the turnover for the first quarter of 2010. The reductions made to air navigation charges in September are still valid, which considerably reduces income.
Air Navigation Services have implemented efficiency measures that aim to improve profitability. Structural reorganization in the first quarter of 2010 has already produced cost savings. Cost savings achieved through the centralization of briefing services are expected be reflected in the result for Air Navigation Services in the second half of 2010. The structural reform of regional air navigation services will cause additional costs in 2010. After the reform, however, Finavia is expecting to see cost savings because of the decreased need for resources.
Real Estate Operations
The turnover for Real Estate Operations decreased by 7.2% to EUR 3.6 million (3.9 million in the first quarter of 2009). Operating result grew to EUR 3.9 million from EUR 0.7 million in 2009. A total of EUR 3.2 million in nonrecurring capital gains were recorded in this business area in the first quarter of 2010 following a land transaction made by LAK.
The extension to the Hilton Hotel at Helsinki Airport is under way. Owned by LAK, this building project will increase the hotel's capacity by some 80 rooms. The extension will be completed in May 2011.
Airpro Oy
Airpro's turnover increased by 20.4% to EUR 9.8 million (EUR 8.1 million in the first quarter of 2009). Operating result grew to EUR 1.7 million from EUR 0.6 million in 2009.
In the first quarter of 2010, the number of flights serviced by Airpro incrased by 5.6%, which in part explains the strong growth. In addition, the severe winter increased the need for Airpro's services. Enhancing the efficiency of internal processes and further developing staff structure and work shift planning were the main reasons behind the favorable cost development. Various long-term measures are beginning to produce results.
Investments
During the past few years, Finavia has considerably developed and expanded its principal airport, Helsinki Airport. The largest projects of the expansion program were completed during 2009, which translates into considerably smaller investment total for 2010.
Investments in the first quarter of 2010 totaled EUR 8.5 million (EUR 15.9 million in 2009). The building project to expand the Hilton Hotel was launched at Helsinki Airport. After a test phase, the new luggage handling system at Helsinki Airport will be introduced in April. The alterations to Terminal 1 have been completed, and the work continues in lobbies 3 and 4 in Terminal 2. Other major investments in the airport network include a terminal extension at Oulu Airport, which is currently in the bidding stage. Finavia's share of this joint financing project totals EUR 9 million.
Developments in air traffic
According to statistics compiled by Airports Council International (1) (ACI), the cooperation organisation for airports, air traffic within Europe is showing signs of moderate recovery. Passenger numbers increased by 3.6% in January and February and, according to advance information, slightly more in March. Based on its weekly statistics, the Association of European Airlines (2) (AEA) reports a growth of 7% for March. According to ACI, cargo traffic grew considerably more rapidly than passenger traffic - by as much as 20.2%.
Developments in the airports of the Nordic capitals (3) have followed the general European trend, with passenger numbers growing by 5.6% in the first quarter of 2010. Copenhagen recorded the highest increase in air passenger numbers (11.1%), followed by Oslo (6.0%), Stockholm (2.0%) and Helsinki (1.0 %).
In Finland, the first quarter of 2010 was marked by slow growth. Passenger numbers in domestic air traffic continued to decrease (-2.8%), for the third successive year. In international air traffic, passenger numbers increased by a modest 2.0%. Total passenger numbers grew by 0.3%, which means that the numbers will remain at the level of 2006, which was reached after a steep decrease in 2009.
Air traffic from Finland to the European Union - to such destinations as Spain, Italy and Germany - continued to increase slowly, by 1.4%. Air traffic to European countries outside the EU, such as Turkey and Russia, grew more rapidly, by as much as 11.2%. After a relatively modest season, air traffic to Asia is showing signs of recovery, increasing by 3.5% in the first quarter of 2010, especially because of the favorable developments in March and the strong increase in transit passenger numbers.
Commercial air traffic landings in Finland declined by 4.4%, with landings in domestic traffic decreasing by 5.8% and those in international traffic by 3.0%. When compared to the developments in passenger numbers, these figures show that air carriers have succeeded in adjusting their capacity to decreased demand and in improving aircraft utilization rates. This has also been achieved through reducing the average aircraft size, which has decreased by 2.6%, in terms of tons.
Overflights in Finnish airspace have long been the exception to the downward trend in the key figures for air traffic. In the first quarter of 2010, however, the number of overflights decreased by 0.2%, with the decline in March being as much as 1.8%.
(1) ACI Europe represents over 400 airports in 46 European countries.
(2) AEA is a cooperative organization of 36 European air carriers.
(3) Stockholm-Arlanda, Copenhagen, Oslo-Gardermoen and Helsinki Airport.
Changes in the Finavia Group's structure
Last year,Finavia sold the waterworks at Helsinki Airport. In January 2010, Finavia sold its energy business operations to Vantaan Energia. This enables Finavia to focus on its core business in the air traffic value chain.
In February 2010, Sari Saari was appointed Senior Vice President responsible for commercial operations.
Outlook for the rest of 2010
In its forecast published in late February, Eurocontrol's Statfor unit predicts modest growth for air traffic operations in 2010. In Eurocontrol's ESRA area, which includes 38 countries, growth is expected to be 0.8%. The prediction for the European Union area, which consists of 27 countries, is even more marginal at 0.4%. Only Eastern Europe will see stronger figures, with predicted growth between 4% and 5%. Norway and Denmark are expected to record positive growth rates, 1.9% and 1.4%, respectively. Finland, Sweden and Iceland are expected to see negative growth, with -0.3%, -1.0% and -1.4%, respectively. These predictions, however, do not include the effects of the volcanic eruption in Iceland on air traffic.
The increased demand in March and early April was undermined by the closing of airspace and airports because of the eruption.
Between April 14 and 23, approximately 3,800 flights were cancelled in Finavia's airports. Approximately 270,000 arriving and departing passengers had to resort to other means of travel. The turnover for all of the Finavia Group's companies is highly dependent on air traffic. During the period mentioned above, Finavia recorded losses amounting to approximately EUR 6 million.
The Finavia Group expects air traffic to recover gradually. In its own operations, Finavia will focus on further developing its services and on enhancing efficiency by continuing to implement its cost savings program. Finavia believes that a positive operating result is possible, provided that demand returns to the level achieved in March.
