31.08.2009

Finavia Interim Financial Report 1 January 2009 – 30 June 2009: The poor prospects of the sector constitute a challenge for Finavia

The key figures for Finnish air traffic for the second quarter of 2009 were almost invariably worse than for the first quarter, when compared with the corresponding figures for last year. The only clear deviation from this trend is the development of the number of passengers in international traffic, which showed a smaller decline (5.1%) for the second quarter than for the first quarter, during which the number of passengers decreased by 7.7%.

In the second quarter, the number of passengers in domestic traffic decreased by 15.8%, whereas the decline for the first quarter was 9.7%. The development of total traffic, 8.5% negative, was almost identical with the corresponding figure for the previous quarter, which was 8.4% negative.

In international air traffic, the impact of the current downturn is particularly felt in the trend of EU zone traffic. The number of passengers between Finland and the EU decreased by 6.1% in the second quarter. As the first quarter also showed a decline of 10.3%, the entire initial part of the year is at a decline of 8.0% in comparison to the previous year. The Asian traffic, which was on the rise for a long time, sagged in the second quarter. This change is based on the capacity cuts that have been implemented. The number of passengers decreased by 9.0%. In the first quarter, the number of passengers still remained at a slight upswing of 1.8%. The best progress in the traffic areas was, perhaps rather surprisingly, achieved in the North American traffic, although it also declined by 1.8% in the second quarter. However, the traffic in North America has increased during the first six months by 9.3% due to the strong growth of 27.4% in the first months of the year.

Airports Council International (ACI) reported that the number of passengers in Europe (1) decreased by 10.1% in January-May. In freight traffic, the corresponding decline was 24.0%. The development in the number of passengers in the Nordic capital airports (2) also was very poor, remaining under the pan-European level. In January-June, the total traffic in said airports decreased by 12.6% year-on-year. The number of passengers in the Helsinki-Vantaa airport decreased by 6.8%, which is less than in other Nordic capital airports.

The number of landings in Finland's commercial air traffic decreased on the previous year. The decline in the second quarter was 9.1%, whereas the corresponding figure for the first quarter was 2.6%. The corresponding figures for landed tonnes were 12.8 negative and 5.9 negative. The ratio between these landing figures and tonnes shows that the average aircraft size in tonnes has decreased. The decrease in the second quarter was 4.0%, and 3.4% in the first quarter. The adjustment measures taken by airlines to deal with the decrease in demand have further strengthened in the second quarter of the year.

Overflights through Finnish airspace were the only traffic indicator showing a systematic positive progress. The number of overflights increased by 2.9% in the second quarter. However, there are signs of a slowdown in the upswing, as the increase in the first quarter was 8.8%. In the January-June period, the increase was 5.6%.

Finavia Group's financial development

1 April-30 June 2009

Finavia Group comprises the State-owned enterprise Finavia and its subsidiaries. The largest subsidiaries are Finavia's wholly-owned companies LAK Oyj (Lentoasemakiinteistöt Oyj) and Airpro Oy.

The Group's turnover decreased by 3.3% during the second quarter compared with the previous year and stood at EUR 81.6 million (84.4). The decline in the turnover is mainly to a decrease in the revenues of the parent company Finavia. During the quarter, Finavia's turnover decreased by 4.2%, that is, by EUR 3.3 million. Of the subsidiaries, Airpro's turnover in April-June was at an upswing of 13.3%, whereas the turnover of LAK Oyj for the same period was at a decline of 8.6%.

The Group's expenses increased by 3.1% compared with the corresponding period during the previous year and stood at EUR 59.0 million (57.2). The increase is due to a growth of 13.5% in personnel expenses in comparison to last year. Excluding items concerning non-recurring pension contributions, personnel expenses increased by 8.5%. Material and service costs remained at last year's levels, and other business costs decreased by 14.5% during the quarter.

The Group's operating result was EUR 9.1 million (14.7%), which was EUR 5.6 million lower than during the corresponding period last year. The decline in the operating result is due to smaller revenues caused by the recession, as well as to the increase in personnel expenses. The adjustment measures for personnel expenses only became actual in the income statement in the second half of the year. Profit during the period under review was EUR 7.1 million (12.3).

1 January-30 June 2009

The Group's turnover decreased by 2.5% during the first year-half compared with the previous year and stood at EUR 165.1 million (169.2). The parent company Finavia's turnover was EUR 4.2 million lower than last year, LAK Oyj's turnover was EUR 0.2 million lower than last year, whereas Airpro Oy's turnover increased by EUR 1.8 million during the early part of the year.

The Group's expenses increased by 3.8% compared with the corresponding period in the previous year and stood at EUR 123.0 million (118.5). Personnel expenses increased by 10% from the corresponding period last year and stood at EUR 59.7 million (54.2 million). This includes non-recurring refunds of pension contributions. Excluding these non-recurring items, personnel expenses increased by 7.4%. The increase was mainly a result of the increase in the level of wages. No significant changes took place in the number of personnel. Material costs and purchases of external services stood at EUR 47.8 million - the same level as last year.

The Group's operating result during the first year-half was EUR 16.1 million, which was EUR 14.0 million lower than the corresponding period last year. Profit during the period under review stood at EUR 11.0 million (24.6 million). Excluding non-recurring items, the comparable profit more than halved from the corresponding amount last year and stood at EUR 9.3 million (19.2 million).

Finances of State-owned enterprise Finavia

1 April-30 June 2009

The turnover of the State-owned enterprise Finavia decreased by 4.2 during the second quarter compared with the previous year and stood at EUR 75.7 million (79.0 million). Income from traffic decreased by 6.6%, but commercial income increased by 0.9%, which was one of the bright spots in an otherwise poor first quarter. Income from international traffic decreased by 4.4% and income from domestic traffic was 19.1% lower than last year.

Finavia's expenses increased by 2.8 % compared with the second quarter of the previous year and stood at EUR 56.4 million (54.9). Personnel expenses increased by 12.4 % and stood at EUR 24.7 million (22.0).

The increase in personnel expenses is mainly a result of the increase in the level of wages. The wages expenditure includes non-recurring items related to pension contributions. This year, the State Treasury returned a total of EUR 1.1 million of over-charged pension contributions to the State-owned enterprise, and the corresponding refund for the previous year was EUR 2.2 million. Excluding these non-recurring items, personnel expenses increased by 8.5%.

At the turn of the year, Finavia launched measures to improve cost-efficiency. The impact of the measures showed in the cost development during the period under review. During the period under review, material and service expenses as well as other business expenses decreased by 3.5% compared to the corresponding period last year.

The operating result of the period under review was EUR 7.5 million (13.5). The result for the second quarter was EUR 6.5 million, which is EUR 5.7 million lower than the corresponding figure for last year (12.2).

1 January-30 June 2009

The turnover of the State-owned enterprise Finavia decreased by 3.6% during the first half of the year compared with the previous year and stood at EUR 152.3 million (157.9 million). Income from traffic decreased by 5.9%, whereas commercial income increased by 1.3%. Income from international traffic decreased by 5.0%. The poor development in traffic shows particularly in the income from domestic traffic, which was 12.9% lower than last year.

Finavia has enhanced the efficiency of its operations in the long term by maintaining price increases below the inflation. The level of the price increases carried out in the last few years has been approximately half of the actual inflation.

Finavia increased its air transport charges by 1.1% at the beginning of this year. The PRM charge (Passengers with Reduced Mobility) was introduced as a new service and a corresponding charge. According to an EC regulation, airports must provide assistance services for passengers who are handicapped or mobility impaired. Producing this PRM service increases passenger charges by EUR 0.20 per departing passenger. Otherwise, the price increase concerned air navigation services.

In January-June, Finavia's expenses increased by 3.3 % compared with the corresponding period in the previous year and stood at EUR 116.9 million (113.1). Personnel expenses increased by 8.6% and stood at EUR 50.0 million (46.0). The increase in personnel expenses is mainly a result of the increase in the level of wages. Material and service expenses and other business expenses for the first half of the year were at the level of last year.

Profit in January-June stood at EUR 9.9 million (24.2). The decrease in the profit is due to a decline in the demand. The cost structure of the airport network is relatively fixed, and adjustments to changes in the demand take place with a delay. Financial items lowered the result. Net financial items stood at EUR 3.0 million negative (EUR 3.4 million negative). The operative result for the first half of the year, excluding non-recurring items, was EUR 8.2 million (18.8).

Finavia's cash flow from operations was EUR 28.2 million in January-June, compared with EUR 40.3 million in the corresponding period last year.

Group operations

Finavia has organised its business in five business units: Each business unit is responsible for its own offering and the national development of its own operations.

Airport Operations is responsible for Finavia's network of airports. It provides airport services and is responsible for the infrastructure and development of the airports.

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

Airport Operations' income in January-June stood at EUR 87.3 million (92.3) and was 5.4% less than the corresponding period last year. The business unit's traffic revenue decreased by 7.4% due to the poor development of passenger numbers.

The basic airport concept has been introduced during the spring and summer. The concept is used for providing services at small airports as cost-efficiently as possible. A renewal of the personal security check routes at Helsinki-Vantaa airport will be carried out in the summer to increase the capacity. In addition, a more efficient concept for personal security checks will be adopted in October.

The extension of the international terminal at Helsinki-Vantaa airport is progressing on schedule. The first stage was introduced in August. Alteration work related to the division of terminals at Helsinki-Vantaa is in progress in T1 and T2. The terminal division between foreign and domestic flights was removed on 5 August.

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.

Air Navigation Operations' income is mainly comprised of the air navigation charges and route charges. During the first half of 2009, the TN units of commercial aviation - on which the air navigation fees of airports are based - decreased by 8.2% compared with the corresponding period last year. Commercial aviation service units, which are used as the service indicators for route fees, decreased by 6.0%. Air Navigation Operations' income was EUR 30.5 million during the period under review (31.4) and decreased by 2.7 from the previous year.

During the first part of the year, 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 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. Commercial Operations' income during the first half of the year was 0.4% lower than last year. 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 (LAK). 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. In January-June, the turnover of LAK Oyj decreased by 3.1% due to a decrease in rental income, being EUR 4.8 million (5.0).

Airpro Oy develops and provides traffic, airport, and travel services for travel and tourism companies and directly for passengers. Airpro's turnover in January-June increased by 13.6%, mainly due to new contracts. The turnover for the period under review was EUR 15.0 million (13.2).

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 includes the authorisation for investment expenses of EUR 94 million during 2009. During the first half of the year, the actual investment expenses totalled EUR 41.0 million (51.1.).

The construction of the extension of the international terminal at Helsinki-Vantaa airport is the largest on-going investment project. The extension will be introduced gradually during the autumn and winter.

Outlook for the rest of 2009

During this year, Eurocontrol's Statfor unit has repeatedly lowered its prognosis for European air traffic. The most recent review was published at the end of July, forecasting that European operations will decrease by 6.1% in 2009. In the evaluation a few months before the most recent one, the pace of the trend was still regarded to be 0.6% better. For Finland, the operational prognosis is somewhat weaker than the average European level, which means that 7.0% negative is proposed as the pace of the trend. In comparison to the prognosis published in late May, the figure is 1.1% lower.

Forecasting the trends in air traffic for the rest of the year is extremely difficult. The International Air Transport Association (IATA) anticipates that the rest of the year as well as 2010 and 2011 will be challenging times for air traffic.

Due to the weakened demand, Finavia's Board of Directors launched a programme in the spring aiming at annual cost savings of EUR 20 million. This involves statutory labour negotiations for the entire personnel, as well as various efforts to enhance the efficiency of operations.

To ensure adequate funding, Finavia has adjusted its investment programme in a controlled way. The impact of the efficiency enhancement programme will partially be felt during the second half of the year and next year.

The weak financial situation of the air traffic sector has already continued for a long time. On 28 August 2009, to ensure air traffic, the Board of Directors of Finavia made a decision to decrease air transport charges by an average of 10.3% as of 1 September 2009 until the end of the year. The decreases will be allocated to passenger, landing, and air navigation charges.

The profit of Finavia Group will remain substantially below the result for last year. It is likely that Finavia will not achieve its financial objectives for 2009.

The profit development in the rest of the year depends on the development of the demand situation in air traffic, and on how well the State-owned enterprise and its subsidiaries manage to carry out the adjustment programmes.

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

Archive