Finavia interim report 1 January - 30 September 2007: international traffic has grown briskly

Air traffic trends

Air traffic continued to grow in the third quarter and the growth accelerated somewhat after the slower summer season. International traffic has grown briskly after the summer: there were 9.5% more passengers in July-September that in the corresponding period last year and the growth from the beginning of the year amounted to 9.6%. The increase in gateway passengers has been particularly fast: in July-September growth amounted to over 40%. By the end of September there had been 31.8% more gateway passengers than in the previous year.

Domestic traffic has decreased both in the third quarter and cumulatively from the beginning of 2007. The number of passengers in domestic traffic decreased by 4.2% in July-September and by 2.0% in January-September. This development in the third quarter is partially explained by part of Finavia’s airports being closed during the summer season due to either renovations or the airline’s summer schedules. The combined increase in passengers in domestic and international traffic was 5.4% since January compared with last year. According to ATA, European passenger volumes grew by 5.9% in January-September so the growth in Finnish air traffic continues to follow the European average.

The positive development in international traffic is also visible in the change in the number of landings. Landings in international traffic have increased throughout 2007 and in July-September growth amounted to nearly 7%. Since the beginning of the year landings have increased by 5.7%. Combined domestic and international traffic landings increased by 1.6% from the beginning of the year even though they decreased by 2.3% in July-September. Statfor reports that operations in European air traffic increased by 6% in July-September so even if Finnish development has, measured by passenger volume, been at the European average, the growth measured in operations is clearly below the average European development. The average aircraft size in commercial aviation increased by 8.8% in July-September and by 6.8% from the beginning of the year.

According to Statistics Finland, the price of air tickets increased by an average of 3.8% in January-September compared with last year: the price of international flights rose 2.4% and the price of domestic flights increased 11.7%.

Finavia Group’s finances

1 July 30 September 2007

The Group’s turnover increased by 6.6 % in July-September compared with the third quarter of the previous year. Turnover increased by a total of EUR 4.5 million. EUR 4.3 million of the increase in turnover comes from air traffic and EUR 0.3 million from other commercial operations.

The Group’s expenses increased by 8 % during the third quarter, by a total of EUR 4.6 million, of which staff costs accounted for EUR 1 million. Other Group costs grew by EUR 3.1 million in July-September and the growth was mainly attributable to an increase in costs related to security check services.

Group depreciation and amortization grew by 4.8% in July-September. At the end of September the renovation of the taxiway at Helsinki-Vantaa airport was completed and in August the hotel at Helsinki-Vantaa airport ordered by the developer Lentoasemakiinteistö Oyj was completed.

The Group’s operating result in July-September 2007 was at the same level as in 2006.

1 January –- 30 September 2007

The Group’s turnover increased by EUR 16.6 million (7.9%) from the beginning of the year compared with January-September in the previous year. EUR 14.8 million of the growth is attributable to Finavia’s turnover growth, EUR 1 million to Airpro Oy’s turnover growth and EUR 0.3 million to Lentoasemakiinteistöt Oyj’s turnover growth.

The Group’s expenses increased in January–September by 9.1% compared with January–September 2006, i.e. by a total of EUR 16.8 million. Of this amount, the share accounted for by staff costs was EUR 6.6 million and other expenses accounted for EUR 9.1 million. Depreciation and amortization expenses also increased by over one million euro. EUR 14.3 million of the increase in Group expenses was caused by the increase in Finavia’s expenses and is attributable to an increase in costs related to security check services. Airpro Oy’s expenses grew by EUR 1.9 million since the beginning of the year. The increase in Airpro Oy’s expenses is attributable to an increase in salary costs.

The operating result in January-September was the same as in 2006, i.e. EUR 26.3 million. Net finance costs were EUR 0.8 million less than in January–September 2006 and thus improved the result compared with the previous year. The Group profit was EUR 23 million and it was EUR 0.7 million better than in January-September 2006.

Finavia’s finances

1 July –- 30 September 2007

Finavia’s turnover increased 7.5 % during the third quarter compared with the corresponding period in the previous year. Traffic income increased by 9.2% and other income by 2.8%.

Finavia’s costs increased by 8%. Staff costs increased by 3.2%, other expenses by 13.3% and depreciation and amortisation expenses by 4.4%.

Finavia’s average number of staff dropped by 2%, but salaries increased by EUR 0.2 million during July–September compared with the corresponding period in 2006.
Other expenses increased by EUR 3.3 million in the third quarter, of which the share accounted for security check services was EUR 2.3 million. An increase in energy prices increased expenses by EUR 0.3 million. Depreciation and amortisation expenses increased by 4.4% during the third quarter.

Finavia’s operating result in July-September was EUR 0.5 million higher than in the corresponding period for 2006. Finavia’s result in the third quarter after financial items was EUR 9.3 million, which is EUR 0.3 million better than in 2006.

1 January –- 30 September 2007

Finavia’s turnover grew by EUR 15.4 million (7.8%) in January-September compared with the corresponding period in 2006. Traffic income increased by 9.2% and other income by 3.2%. The growth in traffic income is a result of the increase in international traffic. Income from international traffic excluding security charge incomes increased by 13%. Income from domestic traffic decreased however by 5% compared to January-September in 2006.

During January-September, Finavia’s expenses increased by EUR 15.1 million (8.7%). Staff expenses increased by 7.4%. The average number of staff dropped by 0.5% in January-September compared to 2006. Salaries increased by 2.7% and indirect labour costs increased by 28%. The indirect labour costs include a supplementary pension payment or EUR 1 million for 2006.

Other expenses starting from the beginning of 2007 were EUR 9.5 million higher (11.7%) than in 2006, of which security check service accounted for EUR 7.3 million. Official fees set by the Civil Aviation Authority have grown EUR 0.5 million since 2006.

The operating result in January-September was EUR 3 million better than in 2006. When non-recurring items are excluded from the operating result the adjusted operating result for January-September is EUR 24.1 million, which is EUR 1.3 million higher than in 2006.

The result for January–September was EUR 25.3 million, which was an increase of EUR 4.1 compared with 2006. If capital gains from investments and one-off items are deducted, the adjusted result for January–September was EUR 21.7 million, and thus EUR 0.8 million better than for January–September 2006.

Airport operations

The turnover for airport operations comprises airport charges, which include, for example, landing fees, aircraft parking charges, passenger and security charges.

The number of domestic departing passengers decreased by 4.7% during the third quarter compared with the corresponding period last year. The income from domestic passenger charges fell during the corresponding period by 3.3%. The total number of domestic passengers fell by 4.2%. From the start of the year, the number of domestic departing passengers during January–September fell by 2.6% and income by 1.5%.

The number of landings in domestic traffic commercial aviation decreased by 14.3% in July-September compared to corresponding period in 2006 and income by 12%. From the beginning of the year landings decreased by 10.1% and due to a strong early part of the year income only decreased by 7%.

The number of departing passengers in international traffic commercial aviation increased by 5.4% in July-September and from the beginning of the year there has been a total of 6.5% more departing passengers in international traffic than in 2006. Income from passenger charges from international traffic increased by 6% in July-September and by 6.4% from the beginning of the year. Due to good development in gateway passenger volumes the income from passenger charges in gateway traffic have also developed positively but only accounts for 7.5% of all international traffic income.

The number of landings in international traffic increased by 6.9% in the third quarter and by 5.7% since the beginning of the year. Income from international landing fees increased by 12% in July-September and by 11% since the beginning of the year. Average aircraft size has grown by 5% from the beginning of the year, which has an effect on both traffic growth and income growth.

Since the beginning of the year a security charge has also been collected from gateway passengers. The security charges collected from passengers in domestic and international traffic were EUR 7.3 million higher since the beginning of the year but during the same period the costs fro security check services have increased by EUR 9 million.

Regular scheduled air services ended at the Lappeenranta airport on 1 September 2007. The Ministry of Transport and Communication (MTC) has arranged a bidding competition for the scheduled air services at Savonlinna airport. The Helsinki region airport study related to the placement of the Malmi airport ordered by MTC was completed in August. The Ministry has requested statements regarding the study by the end of October. The Western Finland Environmental Permit Authority has granted an environmental permit pursuant to the Environmental Protection Act to Tampere-Pirkkala Airport. The permit covers the activities of the Civil Aviation Administration Finavia and Satakunta Wing at 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.

TN payments in commercial traffic increased by 1.4% in the third quarter. Growth amounted to 1.1% in January-September. TN payments in domestic traffic have decreased in every quarter and the overall change is now -8.1%. In international traffic overall growth amounted to 8.5%.

Air navigation income from domestic traffic fell 6% during the third quarter and from the start of the year by the same amount as for the number of payments, i.e. 8%. Air navigation income from international traffic increased by 10% during July–September and by 8% from the start of the year.

The TN payments, which affect the en route charge, grew by 1.6% in July-September after a slow April-June but growth since the beginning of the year only amounted to 1.4%. The number of kilometres flown decreased by another 0.2% in July-September and the drop since January amounts to 0.5%. Overflight growth slowed down in July-September and amounted to 0.5%. The number of overflights grew by 1.4% in January-September. Air route income grew by 1.8% in July-September and by 1.6% since January.

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 2.8 % during July–September and by 5 % from the start of the year. The growth mainly came from income from car parks and Finavia’s own tax free sales.

Finavia has changed the billing principles for the fuel delivered by fuel companies to airlines from the beginning of the year. The fuel companies pay for the litres of fuel they deliver. The payment are a compensation for the use of infrastructure.

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

Finavia continued its investments in the development of Helsinki-Vantaa airport. By the end of September a total of EUR 50.3 million had been invested. The total investments of EUR 100 million forecast at the beginning of the year will not be reached because the extension to the P3 multi-storey car park at the Helsinki-Vantaa airport has been delayed. Finavia’s estimate for investments implemented in 2007 is EUR 80 million.

Group investments from the beginning of the year total EUR 66.4 million.

The biggest investment completed during the quarter was the hotel that was completed at Helsinki-Vantaa airport. It is owned by Finavia’s subsidiary Lentoasemakiinteistöt Oyj and operated by the Hilton chain. The hotel opened in mid-August. In September, Finavia completed a sizeable renovation of Helsinki-Vantaa airport’s aprons and taxiways which caused special arrangements in air traffic throughout the summer.

Finavia utilised the authority granted by the Parliament to take out a loan and withdrew a EUR 50 million loan from the European Investment Bank in July. The loan will be used to finance the sizeable ongoing development programme at Helsinki-Vantaa airport where the single largest investments is the expansion of the international terminal. Its estimated cost is EUR 143 million.

The cash flow in Finavia’s operations has remained good so far this year. Cash flow from operations amounted to nearly EUR 50 million which is almost EUR 10 million more than in the corresponding period last year.

Outlook for the rest of 2007

The European Commission forecasts that EU's economy will grow by 2.8% this year and the Euro area economy will grow by 2.5%. The forecast has been revised downwards due to the increased risk of inflation. According to the Ministry of Finance’s economic survey, the growth of the Finnish economy will continue to be strong this year and will continue into 2008. Finnish economic growth is supported by international economic growth which is evident in particular in the positive development in international air traffic.

The number of passengers in international air traffic has increased by 9.5% by the end of September and international air traffic is expected to continue growing during the rest of 2007. The number of gateway passengers is also expected to continue growing strongly throughout the year. The estimated growth for 2007 is 30%. Airlines, both new and those that already operate in Finland, have opened up new routes after the summer and new routes will also be opened during the winter season and the number of services will increase. Destinations include, for instance Riga, Dublin, Milan, Barcelona and Reykjavik. The weak development of domestic traffic at the start of the year (-2.0%) is expected to continue and the number of passengers will fall during the year as a whole by 2.5%. Statfor estimates that the operations in European air traffic will increase by 5.4% in 2007 and the growth in Finland is forecast to be 0.1%.

Good development in commercial operations and international traffic will compensate for the poor development in domestic traffic. Increased costs, in security check services in particular, presents special challenges for reaching the profit target, but Finavia believes it will achieve a result of EUR 27 million.

In July 2007 the European Commission decided to initiate the procedure referred to in Article 88 section 2 of the EC treaty (official investigation) concerning the changes and arrangements in terminal 2 at the Tampere-Pirkkala airport and Ryanair’s pricing at this terminal. The Commission will investigate whether the operations are in concord with possible State aid regulations, i.e. whether the Finnish State has acted in accordance with the EU treaty. The arrangements at Tampere-Pirkkala airport’s terminal 2 (low cost terminal) have previously been inspected by the Competition Office due to suspected abuse of a dominant market position and the Competition Office found no cause to take action. This decision has been appealed at the Market Court. A competing airline requested the action.