Finavia Interim Financial Report 1 January 2008 – 30 September 2008: International air traffic continues to grow, domestic traffic 5% below last year's level

Air traffic trends

The slowdown in the growth of air traffic is continuing. The number of passengers using Finavia's airports increased by just 2.2% in January–September, compared to an increase of 5.7% during the same period last year. In the third quarter of this year there were just 1.0% (6.2%) more passengers than in the previous year.

In domestic traffic, the development in the third quarter was -5.8% which is very modest, and this meant that growth fell to -5.0% (-2.0%) for the entire January–September period. International traffic, however, continues to post positive development figures, although the percentages of growth are gradually shrinking. In international traffic there were 3.6% (10.8%) more passengers during the third quarter, and 5.7% (10.0%) more in January-September. Examined by destination, the number of passengers flying to Asia and non-EU countries in Europe continued to grow at a healthy rate although a slight slowdown is evident in these areas too. There were 20.4% (38.6%) more passengers flying to Asia and 13.1% (14.6%) more flying to non-EU countries in Europe in January-September compared with the same period in the previous year. In travel inside the EU, however, there has been a significant fall in traffic. The growth percentages have fallen by half from 6.6% a year earlier to 3.2% now.

Growth in air traffic has also slowed down in other parts of Europe. Growth in Finland is fairly close to the average growth in Europe as, according to the Airports Council International (ACI), Europe's¹ passenger numbers increased by 2.4% in January–August. In the Nordic countries² growth has been slightly stronger than the average growth in Europe: 3.6% in January–September, although the figure was reduced by Helsinki-Vantaa's growth of 2.7%, which is less than the airports of other Nordic capitals.

Although growth in the number of passengers using Finavia's airports has slowed, development in the volume of operations has been the opposite. The number of landings in commercial traffic increased by 3.7% in January–September compared with 2007, while the corresponding change last year was -2.4%. In international traffic, the growth was even stronger than last year, or 6.7% (5.7%). The significant reduction in landings in domestic traffic last year has been replaced by a slight increase this year: 0.2 % (-10.1 %). Landed tonnes increased more sharply than the number of landings, so the average aircraft size has continued to increase. The development of operations and passenger numbers in January-September indicates that the average aircraft occupancy rate has fallen.

According to Statistics Finland, airfares fell by an average of 9% (+3 %) in Finland during January–September, compared with January–September of last year. Domestic air journeys were on average 4% more expensive (+11%) and international journeys were 11% less expensive (+2%). Statfor³ reported that airfares in Europe increased by an average of 11% in August.

Finavia Group's financial development

1 July –- 30 September 2008

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 8.9% during the third quarter compared with the previous year and stood at EUR 79.4 million (72.9). Finavia accounted for EUR 5.6 million of the growth, LAK Oyj's turnover grew by EUR 0.4 million and Airpro Oy's turnover grew by EUR 0.6 million.

The Group's expenses increased by 9.4% compared with the corresponding period during the previous year and stood at EUR 54.6 million (49.9). External services grew the most, and were up 13.2% from the third quarter of last year. Staff costs increased by 6% and other operating expenses grew by 11%.

The Group's operating result was EUR 12.3 million, which was EUR 1.4 million higher than during the corresponding period last year. The improved operating result was due to growth in turnover.
Profit during the period under review was EUR 10.2 million (9.2).

1 January - 30 September 2008

The Group’s turnover increased by EUR 22.4 million (9.9%) from the beginning of the year compared with January-September in the previous year, and stood at EUR 248.6 million (226.2). Of the growth, EUR 20.2 million is due to the growth in Finavia's turnover, LAK Oyj grew by EUR 1.8 million and Airpor by EUR 0.7 million.

The Group's expenses increased by EUR 8.9 million (5.4%) in January-September compared with the previous year. External expenses grew the most (EUR 5.7 million). Staff expenses increased by 0.3%. A EUR 2.2 million refund of pension contributions is recognised in staff expenses and by excluding this refund the expenses would have increased by 3.1%.

The Group's operating result from the start of the year is EUR 42.4 million following September. The result includes the non-recurring item of a capital gain of EUR 4.4 million from the disposal of real estate. The operating result increased by EUR 16 million compared with last year. When non-recurring income of EUR 4.4 from the first half of the year, the EUR 2.2 million pension contribution refund and the non-recurring item of EUR 0.6 million in expenses resulting from the intersection of the Päijänne tunnel and Marjarata line are deducted from the operating result, the operating result for January–September comes to EUR 36.4. The improved operating result was due to growth in turnover.

Profit during the period under review was EUR 34.8 million (23.0).

Finavia’s finances

1 July -– 30 September 2008

Finavia's turnover increased by 8.1% during the third quarter of the year compared with last year, and stood at EUR 74.7 million (69.1) in Q3. Traffic income increased by 8.2% and commercial income by 8.6%. Income from international traffic increased by 7.9% while income from domestic traffic fell and stood at 0.9% of the level during the corresponding period last year. The growth in turnover was due to an increase in passenger numbers (1% growth in Q3 from a year earlier) and the increases in passenger fees that entered into force on 1 April.

Finavia's expenses increased by 8.2% compared with the third quarter of the previous year and stood at EUR 52.6 million (48.6). Staff costs increased by 7.7% and other costs increased by 8.6%. Other expenses include a non-recurring item of EUR 0.6 million in expenses resulting from the intersection of the Päijänne tunnel and Marjarata line. Excluding this non-recurring item, other expenses would have increased by 6.1% from last year. Staff costs were well below the budgeted amount and their growth from last year is a result of the general rise in the level of wages and also the change in the unemployment insurance contribution percentage from 1.95% to 2.90%.

The operating result of the period under review was EUR 11.4 million (10.1). The operating result after extraordinary items was EUR 12 million. In addition, a non-recurring writedown of EUR 0.2 million for share portfolio losses was recorded in the September financial results.

1 January –- 30 September 2008

Finavia's turnover from the start of the year increased by 9.5% compared with the previous year and stood at EUR 232.6 million (212.4). Traffic income increased by 8.7% and commercial income by 12.1%. Income from international traffic increased by 11.4% and income from domestic traffic increased by 0.5% from the corresponding period last year.

Finavia's expenses in January–September increased by 4.9% compared with the previous year and stood at EUR 165.7 million (157.9). Staff costs increased by 2.2% and other costs increased by 7.1%.

A pension contribution refund (EUR 2.2 million) was recorded as a non-recurring item in staff costs. Excluding this refund, staff costs increased by 5.3%. External services increased by 7.8%.

The operating result of the period under review was EUR 39 million (26). This was an increase of EUR 13 million from last year. When non-recurring income of EUR 4.4 million, the pension contribution rebate of EUR 2.2 million, and non-recurring costs of EUR 0.6 million are deducted from the operating result, the operating result for the period under review comes to EUR 33 million.

The result for January–September was EUR 34.7 million, which was EUR 9.4 million better than in 2007. Financial items reduced the result, and net financial items stood at EUR -4.4 million (0.7). Financial income fell by EUR 0.9 million and interest expenses increased by EUR 1.2 million. A one-off writedown of EUR 1.4 million was booked from losses in investment operations during the year.

Finavia's cash flow from operations was EUR 58.7 million (49.7). This was an increase of 18% from 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 airports and their development.

The income of Airport Operations 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.

Despite the forecast economic recession, the income of Airport Operations grew at a healthy rate in January-September, with turnover up 8.7% compared with the corresponding period last year. The good development of international traffic and the increases in passenger fees that were carried out boosted the development of income.

At Helsinki-Vantaa Airport, the renovation of taxiway Y, which runs in the same direction as Runway 2, was completed. Runway 2, which had been closed from the end of July, was opened to air traffic in its entirety on 24 September.

Kemi-Tornio Airport was closed from 7 July – 3 August 2008 due to paving work in the airport's traffic areas. The paving work was part of the basic renovation programme for the traffic areas; renovation work was carried out on the rain water systems as part of the same programme.

The assistance service for disabled passengers and passengers with reduced mobility in the airport area was transferred from the airlines to the airports from 26 July 2008. Finavia will start to charge airlines the so-called PRM fee for this service from the start of 2009.

No new routes were launched in July-September.

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

The income of the Air Navigation Operations is mainly comprised of the air navigation charges and route charges. Air navigation charges are determined on the basis of the so-called TN unit, which is affected by the size of the landing aircraft. The service unit serves as the measurable quantity in en-route services.

The 5% reduction in passengers in domestic traffic in January-September is not yet visible in operations. The number of TN units in domestic traffic increased by 4.6% in September, with cumulative growth of 0.7%. The number of TN units in international traffic increased by 4.5% in September (8.4% cumulatively).

Growth in the service units of en-route services⁴ was concentrated on overflights (10.9%) in January-September, but the service units of international traffic (5.4%) also increased compared with the corresponding period in the previous year. The number of service units in domestic traffic in January-September decreased (-0.6%), although service units increased by 1.3% in September.

Overall, the income of Air Navigation Operations has increased by 8.6% from the start of the year to the end of September, compared with the corresponding period during the previous year.

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 dependent on total passenger numbers. The services provided vary from airport to airport. Commercial income increased during January-September by 13.7% compared with the corresponding period last year and stood at EUR 48.3 million (42.5). The positive development is due to growth in volume and price increases.

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 32.3 % in January–September and stood at EUR 7.4 million (5.6). The growth mainly came 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. Airpro's turnover increased by 4% in January-September. The turnover for the period under review was EUR 18.8 million (18.1).

Capital investments

The Group's investments were implemented according to plan. The current year's investment programme totals EUR 118 million. As of the end of September, EUR 82 million of the projects have been implemented. 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 expansion to the international terminal and the expansion to the car park, which will open at the start of next year, are progressing according to schedule.

Investment sites completed during the year include a de-icing area at Helsinki-Vantaa, Turku's low-cost terminal and Kuopio's lake terminal.

Outlook for the rest of 2008

In its September report, Statfor⁵ forecasts that air traffic in Europe⁶ will increase by 2.1% this year. The forecast has been downgraded throughout the year; during the early part of the year the growth forecast was 4.1%. Air traffic in Northern and Eastern Europe is forecast to increase faster than in the rest of Europe and Statfor forecasts that air traffic in Finland will increase by 6.0% during 2008.

The growth in the number of passengers during the early part of the year slowed down from May and, cumulatively, Finavia forecasts that international traffic will increase by only 3% until the end of the year and domestic traffic to be 6% less than the level in 2007. The weakening economic outlook will be reflected in lower demand for air traffic. The state of the world economy and its effects on demand leave a large factor of uncertainty in the development of air traffic.

The sharp fall in the price of fuel after the price peak in the summer is a positive news item and helps to improve the situation in the industry. Nevertheless, the fall in demand after the summer places significant challenges on the finances of airlines. Several airlines have declared bankruptcy and terminated their operations during the autumn. There will be a significant phase of reorganisations in the airline industry next year.

Total air traffic in Finland during the first half of 2009 is expected to be at the same level as during the second half of 2008.

Despite the weaker outlook, we believe we will achieve the budgeted result at the level of Finavia Group.

For more information, please contact:
Deputy CEO Ari Haapanen +358 (0)9 8277 2010
CFO Kirsti Lehtovaara-Kolu, +358 (0) 9 8277 2160

¹ 40 airports in Europe.
² Stockholm-Arlanda, Copenhagen, Oslo-Gardemoen and Helsinki-Vantaa.
³ Statfor, part of the Eurocontrol Agency, produces statistics and forecasts on air traffic in Europe and monitors and analyses trends in the aviation sector.
⁴ A service unit describes both the number of kilometres flown and the weight of the aircraft.
⁵ Statfor, part of the Eurocontrol Agency, produces statistics and forecasts on air traffic in Europe and monitors and analyses trends in the aviation sector.
⁶ IFR operations (incl. take-offs and landings).