Interim report Q2 2007

Air traffic trends

Air traffic has continued to grow moderately during the first half of the year. The number of passengers at Finavia’s airports grew rapidly from January to March (over 7%), but growth slowed from April to June to 3%. The number of passengers during the first half of the year increased by a total of 5.1%, which corresponds to the European average. Growth has been sustained by international traffic as the number of domestic passengers during January–June dropped by 1.1%. The passenger number for international traffic increased correspondingly by 9.0%, and the number of gateway passengers grew in particular: in January–June growth was 26.6%.

Of the main airports in the Nordic countries, the passenger number at Helsinki-Vantaa grew second-fastest after Oslo. Growth at Helsinki- Vantaa was 6.7% and in Oslo 7.9%. The average growth at airports in the Nordic countries from January to June was 4.4% According to information from the ACI, there was a 5.2% increase in passengers at Europe’s main airports during January to June compared with the year before.

The number of commercial traffic landings turned down in April–June, although the figure in January–March remained at the previous year's level. Between January–June there were 2% less commercial traffic landings than in the corresponding period in the previous year. The trend has been the opposite in Europe as growth in April–May has been stronger than at the start of the year. The number of flights in Europe increased by 5.6% in April and by 4.3% in May.

According to data from Statistics Finland, the price of air tickets increased during the first half of the year by an average of 2.0% compared with the corresponding period in the previous year. Domestic air journeys were on average 10.6% more expensive and international journeys 0.5%.

Finavia Group’s finances

1.4.- 30.6.2007
The Group’s turnover increased during the second quarter by 6% compared with the second quarter of the previous year. Turnover increased by a total of EUR 4.3 million. EUR 3.3 million of the increase in turnover comes from air traffic and the rest from other commercial operations. The growth is mainly growth in Finavia’s turnover.

The Group’s expenses increased by 7.9% during the second quarter, by a total of EUR 4.9 million, of which the share accounted for by staff costs was EUR 2.7 million. During the second quarter, a final pension contribution of EUR 1.6 million for 2006 was entered in Finavia’s result, for which a cost provision of only EUR 0.6 was made in 2006. The rise in the pension contribution percentage from 2006 also explains the increase in staff costs.

The Group’s other expenses increased by EUR 2 million during the second quarter and the increase was primarily the result of the increase in costs for security check services (EUR 1.6 million).

The Group’s operating result was down EUR 0.4 million in April–June 2007 compared with the second quarter of 2006.

1.1 -30.6.2007
The Group’s turnover increased by EUR 12.1 million (8.6%) from the start of the year compared with the corresponding period for the previous year. Of the growth, EUR 9.4 million resulted from growth in Finavia’s turnover and EUR 2.4 million from the increase in Airpro’s turnover. The growth in Airpro’s turnover is the result of the growth in service operations.

The Group’s expenses increased in January–June by 9.7% compared with January–June 2006, i.e. by a total of EUR 12.2 million. Of this, the share accounted for by staff costs was EUR 5.7 million and other expenses accounted for EUR 6.0 million. The increase in other expenses is the result of the EUR 3.7 million increase in costs for security check services.

The operating result from the start of the year was at the same level as in 2006. The Group’s result from the start of the year was EUR 1 million more than in January–June 2006. Net finance costs were EUR 1.0 million less than in January–June 2006 and thus improved the result.

Finavia’s finances

1.4.- 30.6.2007
Finavia’s turnover increased 6% during the second quarter compared with the corresponding period of the previous year. Traffic income increased 7.2% and other income by 3.7%.

Finavia’s costs increased by 8.1%. Staff costs increased by 10%, other expenses by 8.5% and depreciation and amortisation expenses by 3%.

The increase in staff costs resulted primarily from payment of the final employer's pension contribution for 2006 (EUR 1.0 million). The average number of staff dropped by 0.4%, but salaries, however, increased by EUR 0.5 million during April–June compared with the corresponding period in 2006.
Other expenses increased by 8.5% during the second quarter, by a total of EUR 2.3 million, of which the share accounted for security check services was EUR 1.9 million.

Depreciation and amortisation expenses increased 3% during the second quarter.

Finavia’s operating result in the second quarter was EUR 0.5 million less than in the corresponding period for 2006.

Finavia’s result in the second quarter after financial items was EUR 8.0 million, which is a decrease of EUR 0.1 million compared to 2006.

1.1 -30.6.2007
Finavia’s turnover grew 8% during January-–June. Traffic income increased by 8.9% and other income by 6.1%. The growth in traffic income is a result of the increase in international traffic.

During January-–June, Finavia’s expenses increased by 9%. Staff costs increased by 9.3%, other expenses by 10.9% and depreciation and amortisation expenses by 2.8%. The average increase in the number of personnel during the half-year period was only 0.2% compared with the previous year. Salaries increased by 3.5% at the start of the year, but indirect labour costs increased by 35%.

Other expenses from the start of 2007 are EUR 6.2 million higher than in 2006, of which the share accounted for by the security check service is EUR 5 million.

The operating result was EUR 2.5 million better than the previous year. If the one-off income from the start of the year of EUR 2.5 million together with the pension contribution for 2006 of EUR 1.0 million is deducted from the operating result, the adjusted result for the 2007 half-year period is EUR 0.8 million higher than in January–-June 2006.

The result for January-–June was EUR 15.9 million, which was an increase of EUR 3.7 compared with 2006. If capital gains from investments and one-off items are deducted, the adjusted result for January–June was EUR 12.5 million, and thus EUR 0.3 million better than for January–-June 2006.

Airport operations

The turnover for airport operations comprises airport charges, which include, for example, landing fees, aircraft parking charges, passenger and security charges. During the second quarter, the turnover of airport operations increased by 9.3% and by 11.5% from the start of the year. The growth came solely from international traffic.

Domestic departing passengers decreased by 4% during the second quarter compared with the corresponding period last year. The total number of domestic passengers fell by 3.3%. The income from domestic passenger charges fell during the corresponding period by 3.6%. From the start of the year, the number of domestic departing passengers during January–June fell by 1.8% and income by 3.2%. The reduction in the average size of aircraft also depressed passenger income from domestic traffic.

The number of domestic traffic landings fell during April–June by 11.5% compared with the corresponding period for the previous year. Income fell by the same amount. From the start of the year, the number of landings decreased by 8.3% and income from landing fees by 6%.

The number of international traffic passengers increased by 6.2% during the second quarter: departing passengers grew by 5.0% and transit passengers by 14.4% compared with the previous year. Income from passenger charges from international traffic increased by more than 5% during the second quarter.

There was a total of 9% more passengers in international traffic from the start of the year than in the year before. The number of departing passengers increased by 7.1% and transit passengers increased by over 17%. Correspondingly, income from passenger charges also increased by 6.5%.

International traffic landings increased by 4.1% during the second quarter. At the same time, the average aircraft size increased by slightly over 7%. The increase in the number of landings and in aircraft size of international traffic also had an impact on income from landing fees, which increased by almost 8% during April–June. Income from international traffic landings has increased by 10.6% from the start of the year.

Charges for the security check service have increased by EUR 5.4 million from the start of the year, but the costs for the security check service during the corresponding period have increased EUR 6.2 million.

Of Finavia’s airports, the following were closed at the end of June in accordance with the carriers’ summer timetables: Kittilä, Lappenranta and Mariehamn. The airport at Varkaus has been closed since 9 March 2007 with the termination of scheduled services to the airport.

Air navigation operations

The turnover in air navigation operations comprises charges for the airport’s air navigation service (TN) and en route charges. During the second quarter, the turnover of air navigation operations increased by 2.2% and by 2.7% from the start of the year.

TN payments for commercial traffic increased by 3.5% in January–March compared with the previous year, but growth during the second quarter fell back and TN payments fell 1.5% compared with April–June 2006. The growth during January–June totalled 1.0%: domestic traffic -6.7% and international traffic +7.6%.

The TN payments, which affect the en route charge, remained at the previous year’s level during April–June and the growth during the first half of the year totalled 1.3%. The number of kilometres flown fell by 0.6%. The growth in overflights slowed in April–June from 7.2% at the beginning of the year to 1.3%. The number of overflights increased by 4.0% from January–June.

Air navigation income from domestic traffic fell 9.7% during the second quarter and from the start of the year by the same amount as for the number of payments, i.e. 6.7%. Air navigation income from international traffic increased by 4.8% during April–June and by 5.4% from the start of the year. Income from overflights increased by 2.6% in April–June and by 3.3% from the start of the year.

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.

Other operations increased by 3.7% during April–June and by 6.1% from the start of the year. The growth mainly came from income from car parks and Finavia’s own tax free sales. Turnover for public service tasks sold to the State remained at the same level as for the corresponding period in the previous year.
Financing and investments

The Group's cash flow from operations remained at the same level during January–June as compared with the previous year’s corresponding period. The Group’s investments increased during the corresponding period by EUR 10 million to EUR 38 million. Work on renovating the taxiways started at Helsinki-Vantaa Airport in April. The repair work will be completed by the end of September. The cost estimate of the renovation is EUR 7 million. The investment to expand the international passenger terminal at Helsinki-Vantaa Airport and the construction of the new baggage system are continuing.

Finavia paid the State EUR 11.4 million of profit entered as income in April.

The Group’s liquidity fell by EUR 14.0 million.

Organisational changes

In June, the Board of Directors took the decision to make Finavia’s Group organisation reflect its business operations.

The following individuals were appointed to head the operations:
Airport operations: Reijo Tasanen
Air navigation operations: Martti Huomo (for the time being)
Commercial operations: Mats Rosin (also continues as airport manager and regional manager)
Real estate operations: Antti Ala-Heikkilä
Airpro operations: Gun Näse

Other appointments:
Jim Häggblom was appointed manager of Mariehamn Airport and Mikko Viinikainen as environmental manager at corporate headquarters. Personnel services were reorganised and deputy manager Kaarina Soikkanen was appointed to head the service.

Prospects for the end of 2007

During the summer season, new routes to Finland have started and the trend will continue in the autumn. New routes have been launched or will be launched and the number of services has increased to destinations such as Dublin, Delhi, Mumbai, Hong Kong, Bangkok, St Petersburg, Munich and Seoul.

The number of international traffic passengers departing Finland increased by over 7% from the start of the year and the growth is expected to strengthen at the end of the year. The number of Gateway passengers is also expected to continue to grow strongly at the end of the year. The estimated growth for 2007 is 30%. The weak development of domestic traffic at the start of the year is expected to continue and the number of passengers will fall during the entire year by 2.5%.

Finavia’s profit target for 2007 is EUR 27.3 million. On the basis of the half-year result, the objective will be met even though the rise in costs for the security check service will make attaining this target more difficult. Finavia’s Board of Directors decided at their June meeting that a fee for the security check service will also be charged from international gateway passengers from the beginning of September. Expanding the basis for the charge will reduce the deficit for the security check service.

At the end of the year, the environmental permit application for Helsinki-Vantaa Airport will be submitted. The application covers not only Finavia but also indirectly the companies working at the airport.

The Commission of the European Community issued its proposal for an airport charge directive at the start of the year. The aim of the directive is to create common principles for pricing airport charges. Finavia mainly supported the proposal in a statement it issued in May.

¹ An international traffic transit passenger who arrives from an airport in another country and who continues to another foreign airport.
² Stockholm-Arlanda, Copenhagen, Oslo-Gardemoen and Helsinki-Vantaa.
³ EUROCONTROL Short-term Forecast, May.