Finnair (FIA1S.HE) has concluded 2023 with robust financial results, reporting a 5.8% increase in revenue and a €60 million net result for Q4, marking its fifth consecutive quarter of profitability.
The Finnish airline has successfully reduced its debt by €1.2 billion and completed a €570 million rights issue, while achieving a higher-than-expected EBIT margin of 6.2%. Looking ahead, Finnair aims to increase its capacity by 10% in 2024, although revenue growth is projected to lag behind this expansion.
Key Takeaways
- Finnair reports a 5.8% revenue increase in Q4 2023, with a net result of €60 million.
- The airline has reduced its debt by €1.2 billion and completed a €570 million rights issue.
- EBIT margin for the year stands at 6.2%, surpassing initial estimates.
- Finnair plans a 10% capacity increase in 2024 but expects slower revenue growth.
- Fleet renewal is on the horizon, with the integration of previously leased aircraft and new A350 deliveries.
- Ancillary revenue per passenger is on the rise, with expectations for this trend to continue.
- The company aims to maintain profitability despite acknowledging Q1's historical challenges.
Company Outlook
- Finnair anticipates a 10% total capacity increase in 2024.
- The airline expects revenue growth to be slower than capacity growth.
- Short-haul fleet renewal is planned for the coming years.
- Finnair will operate its own aircraft previously leased from British Airways starting in 2024.
- New A350 aircraft deliveries will not significantly contribute to 2024 capacity growth.
- Recruitment efforts for pilots and cabin crew have been successful, matching capacity increase demands.
Bearish Highlights
- The competitive environment in Helsinki poses challenges.
- Q1 results are uncertain and traditionally challenging.
- Recent political strikes may impact future updates if they prove material.
Bullish Highlights
- Finnair boasts a strong network, customer service, and advantageous location.
- Ancillary revenue per passenger is increasing.
- The company has a comfortable cash balance of €922 million and expects solid cash flow generation.
- Positive factors include a strong yield environment, competitive cost structure, and tax assets.
- Early summer period shows optimism with positive load factor momentum.
Misses
- No specific details on the impact of recent political strikes.
- Lack of clarity on Q1 visibility and guidance.
Q&A Highlights
- No correlation between the Red Sea situation and cargo yield levels.
- Finnair's cargo business is driven by normalized capacity levels and overall economic activity.
- Demand and passenger behavior are similar to pre-pandemic levels.
- Finnair plans to refinance its 2025 bond maturity proactively in the capital markets.
- The airline remains focused on cost discipline and continuous improvement to maintain profitability targets.
Finnair has demonstrated resilience and strategic agility in navigating a challenging market landscape. With a strong end to 2023 and a clear vision for the future, the airline is poised to continue its growth trajectory while adapting to the evolving demands of the aviation industry. The company's focus on efficient fleet usage, cost management, and market opportunities, particularly in Asia, positions it well for the anticipated capacity increases and the busy summer season ahead. Finnair's commitment to maintaining profitability, despite potential headwinds, underscores its robust operational foundation and forward-looking approach.
Full transcript - None (FNNNF) Q4 2023:
Erkka Salonen: Good day, ladies and gentlemen. I'm Erkka Salonen from Finnair IR, and it's my pleasure to welcome you all to this Finnair's Fourth Quarter and Full Year 2023 Earnings Call. I am here with me Finnair's Interim CEO, Mr. Jaakko Schildt; and he is joined by our CFO, Mr. Kristian Pullola for the Q&A session. I will now turn this call over to you, Jaakko. Please go ahead.
Jaakko Schildt: Thank you, Erkka. Good afternoon from Helsinki, snowy Helsinki on my behalf to and happy Valentine's Day for everybody. It's the 14th of February today. Let's start with the quarter four. In the presentation traditionally, we touched the quarter four and also the full year 2023 development, and we have a lot of good news to share with you. And our headline for quarter four is it was really a solid end to a strong year. I mean, the market is robust. We saw a good development in the market and also our internal efforts with strategy execution, both on the revenue area and the cost area is really bringing the results. Quarter four, I mean, going back to quarter four, I mean, we had a good performance, despite the fact that we were meeting challenging winter conditions in our operations. We had snowstorms, couple of days of snowstorms, and also we had a really cold weathers for a couple of days. However, we were able to deal it with in a very appropriate way, on-time performance, landing to the 75% and the customer satisfaction, NPS at 32%. Looking at the revenue for quarter four, I mean, the revenue increased 5.8% and a comparable EBIT landed to €23 million, net results €60 million and I think the highlight for the quarter four is really that this was a positive fifth consecutive quarter. And I think it would be fair to say that this company, we made it, we survived from the pandemic and the double crisis and the evidence is actually the fifth consecutive quarter being positive. Revenues stayed on an elevated level, 20%, passengers increased, and I think it really well describes the excellence of this result when I look at the ASK selling capacity. We did all this with the 17% less capacity compared to 2019. It's a very good result. Load factors we saw improving in Asia and North Atlantic and Middle Eastern traffic areas. Load factor, total load factor landing to 73%. We will come back to the load factor issue a little later when we talk about the capacities and so on. Looking at the full year then, I mean, there is a number of contributing factors what actually made us to land at the comparable EBIT margin 6.2. First of all, after the pandemic, 2022, we still had an – we had a fleet what was not fully utilized. We were really able to make the 330 aircraft, which was not fully utilized, to the full use. We have a cooperation with Qatar Airways and Qantas operation started, 2023. There will be one more aircraft going into Qantas this year, but we were really able to take the fleet into the efficient use. Through the whole year, we were able actually to purchase nine leased aircraft leading to significant cost savings and also operational flexibilities. It is a different story when you own the aircraft versus leasing. You can really define when is your end life and when you exit the aircraft from your fleet. Finance and transactions, it's great to be in the position that we have no remaining debt instruments deemed as an equity, that's really a foundation for the healthy balance sheet. And we successfully executed €570 million rights issue. We're going to have a more detailed picture for the under downfalls for the balance sheet later on in the presentation. Also the change channels, we were really able to shift – change our distribution into the more modern sales channels and also with the cost activities, I mean, that was really bringing a lot of bottom line result. And that's great to have because the cost is one of those things what is going to follow us, whether the cycle in this business is positive or if the cycle would be go down, we always need the cost efficiency. Repeating again the great result, EBIT margin 6.2 and I think the significance of this EBIT margin is that our earlier estimate and our own plan was that we would reach this target within 12, 15 months time and we reach it earlier. So this is – it's a very strong performance for 2023. Now we look at the quarters. I mean, we are back on the quarter four and we are looking at actually onto the previous, previous kind of quarter and 2022. I mean, repeating, I mean, the success factors. I mean, there are a couple of key success factors and I just repeating them. It is really that we increased the capacity and by that one made possible to create more earnings. There is a strong demand in the market. Overall, the market capacity is somehow limited and it's actually keeping the unit revenues up. And then our own activities on the sales, I mean, repeating them from the previous slide was really giving us kind of positive result. We did see actually on the quarter that from the previous quarter, from the last year is that the cargo revenues are declining. But I do consider this overall more as a positive kind of sign because that means that the whole aviation business is normalizing. Cargo revenue has been really extremely high during the pandemic, and so on, and now we can see it normalizing. However, they are still on the elevated level compared to 2019. Expense management and the cost management, the internal effort for this one has been very efficient and we are actually very proud to be in the situation that we can now state it at the end of the quarter four. It has been not definitely an easy journey internally, but it's really paying off. Then the last one on this slide is that we were actually able to recognize some of the tax assets. We can see there on the 2023 column, it's €135 million in this paragraph. And that is something which is, I mean, when we compare the years and the quarters to a different, there is a big difference, but we'll talk a little bit later. We talk a little bit more about that too, at the later stage Okay, in this picture and an illustration, we're showing you our result history from 2014. As we can see that historically, 2023 was a very, very good year for Finnair. And it's great to be in this position. And I'm repeating and really stating is that with this result I'm very confident and I can say that this company made it through the crises. On the picture is just on the net result being €255 million, there is a contribution. It's a bit more than a half is actually the tax asset treatment. What I talked on the earliest page. Balance sheet, now we talk about the quarter four again. Let's look at first the operating cash flow side of it, what is minus €6 million. That's actually quite typical that the period of the quarter four, the operating cash flow is little lower because basically the tickets has been bought at earlier during the year. And then we are flying those flights during the quarter four. So I am not concerned about that number at all. On the next slide, we are going to look at the total operating cash flow. And that tells a good story. Back then to the quarter four, we are looking the right part of it – right part of this downfall chart. It is that, okay, our rights issue sits there, €568 million. And because of the rights issue, we were able to repay our debt and also invest the six leased aircraft driving actually a significant cost saving on us. And we are landing at the end of the quarter four doing cash level €922 million, which is actually very good, appropriate level of this size of the company. Then we are looking actually the whole year kind of cash issue. I mean, first I would like to you to pay an attention to the operating cash flow on the left side of it. I mean, operating cash flow €472 million that is a very, very strong operating cash flow. And on the right part of it, it is actually the repayments of the loans and other activities. And overall we were able to reduce our debt burden by €1.2 billion, which is a significant number. And that definitely drives our balance sheet to be much, much healthier going forward. Talking more about continuing on the balance sheet, I mean, there are a couple of KPIs and the trends actually on the equity ratio and the gearing. And I think here we can see the positive trend on both KPIs. We can see how the kind of and on the left we are listing the items, what have been the key contributors on this one. And the trend is definitely here, what is visible, that's the trend what we are determined to kind of stay and we have to stay even go further with our balance sheet. Okay, I talked the rights issue a couple of times earlier during the call and we set some targets to ourselves during the rights issue. I mean it was on EBIT margin, it was on net debt divided by comparable EBITDA and it was cash to sales and it's cash to sales. And from the picture you can see that actually two of the KPIs we have already, I would say reached and I am especially very kind of happy to inform and actually proud about the EBIT margin we reached that one ahead of our initial plan and thinking that's a very outstanding result. This all sums up that when we look at then the graph on the right side of the graph there is the distributable equity and we can see the good, very positive good trend there. And we are on a track with our aims to reinstate our ability for the shareholder distribution from 2025 onwards and so on. So definitely having positive vibes for this development too. Going forward in 2024, I mean, first, I think it is we are very determined to continue on our strategy implementation, being it revenue initiative, being it cost initiative, all looking at all the things, what we could do and what we are doing for the customers, the strengths, what the Finnair is having. It's actually the quality and reliability drives the customer satisfaction. And on the top of that one, it is needless to say that all these drives the profitability. We are increasing the capacity for 2024. Next page, we're going to look at bit more detail on our guidance and let's talk a little bit more about the capacity. But they are now – all our assets and the full fleet is an efficient and profitable use, partly of course, thank you, our oneworld partners, with whom we go operate. We are also taking the wet leases out from the British Airways and we're going to fly those aircraft airplanes by ourselves. And then 2024, we're going to have a delivery of our next A350 aircraft, I mean, the aircraft what we ordered long, long time ago, years ago, we postponed actually the delivery twice because of the crisis and now we are getting it into the traffic late 2024. However, the arrival of the aircraft is so late that it's not contributing significantly to the capacity growth on 2024. Our outlook and guidance, I mean, I’m not reading line by line of the guidance, but it's according to our policy. But probably I stop a little bit to our plans to increase total capacity by 10% and probably highlighting that we are saying that the Finnair revenue is expected to grow at somewhat slower pace than the capacity 2024. So key of this capacity growth is really that we use better and more efficient all the assets, what we are holding currently, and we are swifting the aircraft from the wet lease to our own production. And this is definitely driving us a better financial bottom line result. And we have been really on very elevated unit revenue environment. I mean, the quarter four 2022 was extremely high. We saw some change to the quarter four 2023 and so on. And I think it's very responsible to have a statement that we kind of give the guidance that it's somewhat slower pace, the revenue development and the capacity on 2024. Now we are kind of heading towards the end of my presentation. And I guess, Erkka, now it is the time then to have a question and handing over back to you.
Erkka Salonen: Yes, indeed. Thank you, Jaakko. So if you have any questions, please follow the operator's instructions to present them.
Operator: [Operator Instructions] The next question comes from Pasi Väisänen from Nordea. Please go ahead.
Pasi Väisänen: Great, thanks. This is Pasi from Nordea. Well, I have a couple of questions. Maybe if I just kind of go through those all and we can actually then look at kind of if there's something left after the answers. But first of all, to start with guidance and let's say, assuming that capacity growth is some 11% for this year, so are we then going to see some roughly around 7% revenue growth for the year – on year-over-year basis? And if it really happens that the RASK is now declining, as you highlighted, will the CASK decline less than RASK on this year? And at this delta, I would actually like to also discuss with you and then a couple of other questions are related to kind of to investments and the amount of sales. So when you actually are planning to start this renewal process of the short haul of fleet, is it going to happen on a couple of years of period and when we are going to see news regarding this investment phase and we're looking at the kind of the amount of sales. So would it make actually sense to make reverse split already on this spring or do you have any plans for that? Thanks.
Kristian Pullola: Okay, thanks Pasi. Maybe I'll take a first stab and then Jaakko will add. So on your guidance question, unfortunately, I need to just say that’s a very good question. We have deliberately not provided the detail on profitability. As Jaakko said, we are seeing that in the current environment it makes sense for us to utilize our assets more efficiently and through that grow capacity. And then, as Jaakko also said, we do see that from a yield development, we are comparing ourselves against a very high yield environment. And because of that, it’s prudent to assume that things will normalize somewhat, even if we believe that the yield environment also this year will continue to be strong. Having said all of that, we will of course, monitor the situation and if there is some uncertainties, realizing in the demand environment, we can always kind of course, correct when it comes to the actual kind of capacity that we end up flying for the year. But the current plan is to utilize the assets that we have and to utilize them more efficiently throughout the year. When it then comes to CASK, as Jaakko also said, cost efficiency continues to be instrumental in our thinking when it comes to long-term competitiveness. We see that being cost efficient is a no regret move in any scenario and in any kind of strategy outcome that we might have. And because of that, we are kind of taking the good learnings that we’ve accumulated during the crisis and turning them into a continuous improvement way of working within the company. And through that we hope to be able to continue to be good at developing CASK going forward. Then how will that relate to RASK development? Time will tell and once we have a better understanding of how this year’s profitability will develop, we’ll then provide updates to the guidance during the quarters to come. Then when it comes to the fleet renewal for the short haul fleet, as we said, in conjunction with the rights issue, that is something that we will need to address at some point. Having said that, our wide-body fleet is mainly very modern and their investment requirements above and beyond the two aircraft that we have on delivery is going to be very limited, when it comes to the short haul fleet also there, half of that one is still such that you can fly quite many years with it in the current environment, but then maybe the other half is such that we’ll need to start dealing with it during the next years to come. The reality is of course, that if you want to acquire new aircraft in the current environment, they are not available immediately. You’ll get them in years time. So in that sense, I think this is still something we’ll need to address and make decisions on at some point of time. But the implementation of it will be over many years to come. And then on your final question on the reverse split, as I’ve said after the rights issue, this is something that we have on the table, trying to work it out in terms of how such thing would be implementable in the kind of environment where we have a large number of also small retail owners in our shareholder base. So once we get to AGM proposals, you might hear something more on the topic.
Pasi Väisänen: Okay. Great. Thanks. I hear you. That was all from my side.
Operator: The next question comes from Jaakko Tyrväinen from SEB. Please go ahead.
Jaakko Tyrväinen: Hi, good afternoon. Jaakko from SEB. I would like to continue on your guidance. You're planning up to 10% capacity increase. How confident you are that you will find a kind of a corresponding demand for that increase. Perhaps, it's just me, but 10% sounds quite a lot. Could you elaborate how you are ensuring that the capacity increase can be made without sacrificing too much load factors or the yield level?
Jaakko Schildt: Okay, now we had some echo in here. Now I'm back online. I'm very confident actually about this capacity increase because it is coming from the elements what I mentioned earlier, being it's that we really don't take an external aircraft and increase the cost in a major way that they would become a new tails in. We are increasing the efficiency and switching the aircraft from the BA production then to our own production and so on. The demand environment has been, I mean, very, very strong for basically starting from 2022 through the whole 2023. And when I look at our route network and where we are adding, we have announced that we will start the Nagoya-ken. We are very strong in Japan and then there are a number of destinations what we have been implementing being it or actually communicating to the market being the Northern Norway or Poland or [indiscernible] I am actually very confident that this is the right move for Finnair to do. It is also something because we're doing it with our own fleet and we are adding tails. I mean, we have the levers and flexibilities to the move kind of then to adjust our thinking if for some reason the demand is not picking up.
Jaakko Tyrväinen: Okay, good, thanks. Perhaps following up, still on the same topic, how much more crew members you need to recruit in order to deliver the 10% capacity increase or will it be able to do the increase with the current stuff?
Jaakko Schildt: It is not a significant number. So we can see also the utilization efficiency that when we put the more capacity out and we increase the utilization, the major part of it, we can increase the crew utilization too. And I know that the industry kind of is struggling on some other parts of the world and Europe actually to attract people and get the people. So we have a very good situation on that one. What comes to availability of the pilots? Good qualified pilots and also the cabin crew, the recruitment efforts has been – they have been very popular and we have been really able to choose the best people out from there. And we are very good on our targets with the plans actually to increase the people.
Jaakko Tyrväinen: Okay, thanks. Next one on the competition environment. What is your current visibility regarding competing capacity in Helsinki in one to for 2024? Are you seeing rivals adding capacity as well?
Jaakko Schildt: Of course, the competition, that is nothing new to us, including the low cost guys. I mean, we have always faced the competition in Helsinki, in our home base and in other places. We have an excellent network and actually schedules. We do fly to the primary airports of Europe and so on. And we look after the customers first during the journey, outside of the journey, and also at the time of the disruptions. And I think these are very strong assets against the competition. It is also the fact that if I just look at Helsinki's location and put that one into the operational parameters, what the low cost guys are doing, it's probably very difficult for them to make the aircraft into the efficient use, because Finland is one and a half hours away from the big, big concentrated cities from the Europe.
Kristian Pullola: And then when you add some of the challenges that you have during winter times here, that’s most likely also one thing that competition takes into account when they think about how attractive Helsinki is vis-à-vis the other alternatives that they have for their flying.
Jaakko Tyrväinen: Cargo and the current yield levels, are you seeing the yield picking up following the situation on Red Sea?
Kristian Pullola: We haven’t been able to make a correlation with the situation at Red Sea to the cargo market – cargo deals. No, we haven’t seen a correlation there.
Jaakko Schildt: So air cargo is – or sea cargo is not the direct competitor of air cargo. We are talking about slightly different kind of markets here and now the sea cargo timelines getting extended by six to 10 days doesn’t change the big picture relative to air cargo. So the drivers for our cargo business are others. It is about the normalized level of capacity now of flying to Asia and then it’s the overall kind of economic activity, which is going to be the main drivers for our cargo business.
Jaakko Tyrväinen: That’s clear. Then moving to ancillary, where we saw quite nice tick up in ancillary per packs. What was driving this, especially in Q4? And should we expect this level to be the new normal going forward?
Kristian Pullola: It was really driven our kind of approach, what we did to our kind of ticket classes and activities to drive the revenues up. So we are actually very happy to see that our efforts on this area is paying – I mean, giving the results and we definitely see that this area is going to stay on this level or even improve further.
Jaakko Tyrväinen: Good. Thanks. My final one, sorry to have so many, but historically you’ve been, if we think, era prior to COVID, you’ve been loss making in Q1. What is your visibility for this year Q1?
Jaakko Schildt: Yes. So we are not providing any guidance for Q1. And you’re right, Q1 has been a challenge. I think the only thing I can say that both guys on this call will do their utmost to ensure that the streak that we now have when it comes to six consecutive quarters of profitability would be something we could continue, but it will be a challenge during the seasonally low first quarter.
Jaakko Tyrväinen: Excellent. Thank you so much. All from my side.
Operator: The next question comes from Joonas Ilvonen from Evli. Please go ahead.
Joonas Ilvonen: Hi, it’s Joonas from Evli. Coming back to the capacity growth question, would it be possible to provide some color on these route areas, like, let’s say, do you expect maybe double digit growth in Asia, mid-single digit growth in Europe and maybe flat elsewhere? Some color on those folks.
Kristian Pullola: The answer is no. I mean, it is really distributed the network. I mean, I mentioned a couple of new destinations what we are having there, then we are adding frequencies to some destinations and so on. We have no such detail available.
Joonas Ilvonen: All right, thanks. Another question. These recent political strikes and their possible impact on Q1 results, will you get back to those possible impacts later on before the Q1 release?
Jaakko Schildt: So again, I think we all know that the current situation is fluid, to say the least. We had two days of strikes impacting our operations. There is always some headwind from a profitability point of view, coming from these type of actions. If that cumulative impact would become material, then of course we would consider if that would be something we would come out with. But as we now look at it, my earlier statement, when it comes to us being focused on trying to keep the streak alive, is still the valid one.
Joonas Ilvonen: All right, thanks. That's all for me.
Operator: The next question comes from Achal Kumar from HSBC. Please go ahead.
Achal Kumar: Hi, thanks, gentlemen. This is Achal from HSBC. So my first question is on Asia. So basically, you mentioned that your focus would be on Asia. While I can see that your yield has come down on Asia, I mean, your capacity was up 24% and your passenger revenue was up 19% in Q4 versus Q4 last year. So just want to understand, if you could please break up in terms of Asia. So what makes you confident, or rather what encourages you to grow more on Asia? I mean, what kind of growth is there? Is it more corporate? Is it like – previously, I understand that you mentioned, your predecessor [ph] mentioned that the group travels, I mean Asia was known for the group travels, which are discounted travel, and you were discouraging that. But now what is it that encourages you to grow on Asia while the yield seems to be going down? And then, of course, the cargo is also going down. So if you could please break up on that and help us understand that.
Kristian Pullola: Yes, thanks for the question. So, first observation here is that the year-on-year compare is a bit of a difficult one, because still during last year and still during Q4 last year, the capacity in Asia was relatively low, and because of that, the overall yield levels were at very high levels. We have added during 2023 a lot of capacity to Asia and we and others and because of that, the yield levels have somewhat normalized. However, they do still take into account the higher costs of operating those flights. And in that sense, it's a good business. So you should be careful when you look at the year-on-year yield developments on Asia, because of the fact that the 2022 was really on exceptional levels. Then we will look at in which markets it makes sense to increase the frequencies. We are not talking about additional destinations here. We are really talking about more frequencies going from twice a week to five days a week, going from five days a week to seven days a week, and so on. Asia is maybe the last place where we still, during 2023 and even during Q4, saw some impact from COVID. So the travel patterns haven't normalized. And there are two specific points maybe to make there. One is China. China did free up the travel early on last year, but actually it hasn't picked up that much. Partly that is also because of the fact that there is no level playing field between western and Chinese companies, because the Chinese ones can operate over the Russian airspace. And then the other one is Japan. Travel out from Japan has been slow to normalize to a pre-pandemic level. And that's of course something which we are monitoring and taking into account when we then make capacity increase decisions related to Asia. But again, I think, I don't think we said that we will specifically grow on Asia. I think Jaakko's [ph] answer was that we will specifically increase capacity in all markets. So there is really no one place where the majority of this will be. The one exception on an overall Finnair capacity point of view is that we will double our flying to Australia for the benefit of Qantas because we only had one airplane operating for a short period of time last year and we will soon be operating two planes for the majority of this year. So that's of course, from a Finnair overall capacity point of view, a big increase, but that's not our own flying. That's a wet leased operations that we do for Qantas.
Achal Kumar: Yes.
Jaakko Schildt: The commercial risk on that one is taken by Qantas.
Achal Kumar: Right. I mean on the Slide 12. I thought you mentioned that this growth will mainly focus on Asia and Europe. And so hence the question. But anyway, I get your point. And then of course, a second part of my question was that if you could please break up in terms of kind of a traffic profile between Finland and Asia. I mean, do you see any traffic profile getting better? And then you mentioned – you just mentioned that Chinese carriers do have access to Russian air space. And of course that remains continue. So do you – I mean, do you see a risk of Chinese guys taking over the share? Or do you think there could be some political intervention and probably politically Chinese carriers could be stopped from increasing capacity between Europe and China? Do you think that is possibility or do you see that is not there and hence you continue to face risk from losing your share to Chinese carriers?
Jaakko Schildt: Okay. The competition and the situation with competition is what it is. And what comes to the political resolutions with their space. I mean, we will not speculate with these kind of things. And our approach on this one is that, okay, Finnair needs to be profitable and continue the kind of good journey what we have now started with [indiscernible] result, we need to continue that good result development in the current environment, being the Russian airspace there or having the Chinese carriers. I mean, having them not level playing field with the Chinese carriers. So we are eyeballing the Shanghai and Beijing. Those are the two destinations. We had much more destinations prior to the pandemic in China. And if we would see there an opportunity to make a profitable business for sure I mean, that's where we are heading to and that's what we are kind of eyeballing and following very closely.
Achal Kumar: Okay, sorry, I mean, and going back to the charts on Page 17. So one, of course I asked you about Asia, and second thing, which very – which quite surprised me, or maybe I'm missing some point, even on the left hand side, you mentioned that your passenger revenue on the Middle East was up 19%, while the capacity was up almost 65% or 60%. So where is the gap and what's happening on the Middle East side?
Jaakko Schildt: You're referring now to what?
Achal Kumar: The left chart on Page – on Slide 17. The left chart on the Slide 17, the Q4 versus – passenger revenue versus Q4 last year, and where you mentioned the breakup of different region wise revenue. And in that chart, you mentioned that passenger revenue on the Middle East was up 19% and then your capacity was up 60%. So was there such a big dilution in the yield, or am I missing something please?
Jaakko Schildt: Okay. So now I think I'm kind of understanding the question. Yes, I mean, it is because the operation what do we do with our partner, Qatar Airways for Doha. So we fly actually operations from Helsinki to Copenhagen and Stockholm to Doha. And some of that capacity is actually at the commercial risk of ours. We are selling it, and some of it is actually with our partners, Qatar Airways. And that probably makes the Middle East to look kind of somehow not logical.
Achal Kumar: But otherwise, in general, how do you see the yields on the Middle East, especially for the part you are flying, which is not under contract?
Kristian Pullola: So, again, I think we haven't seen any kind of big changes or big differences in yield development across the region. So that's why I'm a bit perplexed with your question, because the conclusion shouldn't be that there's a big change in yields in any of the regions in which we operate. But again, let us have a look at that with Erkka, and we can come back to you if we have a smarter answer than what we can give here on the spot.
Kristian Pullola: And I guess you should also notice that the figure on Slide 17 is actually an absolute figure, so €19 million instead of 19%.
Achal Kumar: Yeah. Yeah. Sure, sure. No, I get it. My next question was on the cash flow. So, basically, congratulations on reducing your debt by €1.2 billion, which is definitely a big amount, but of course, you ended 2023 with a cash fund of €922 million. How comfortable are you with this level of cash? And then – and do you think you will have another activity or anything which sort of to raise this level, €922 million? Or how should we look at your cash flows going forward in 2024 please?
Kristian Pullola: So, as we said in conjunction with the rights issue, we have carried a larger kind of cash balance with us during the crisis, and that was appropriate and maybe one of the reasons why we were able to at all times do the right thing, because we had sufficient liquidity to make decisions. But now, once we've recovered profitability, and then after the rights issue, when we have also improved the balance sheet position, we felt that it's appropriate to move the cash balance down to a more normal level and that's why we set the target to be 30% cash ratio to sales. And that's where the €922 million approximately is. So I do feel very comfortable with that level of cash. It could grow a bit if our top line grows but other than that we also see that our ability to generate cash flow should continue to be good. As the yield environment is strong, demand is there, our cost structure is competitive, and we then have some shield from the tax assets when it comes to being able to now operate profitably without having to pay cash taxes for some years to come, which will also be a positive lever on cash flow in the end. So in that sense 2023 was a great year cash flow wise, and some of that positive impact came from us growing the business considerably during the year. But from here onwards, I see no reason why cash flow generation wouldn't continue on a solid level.
Achal Kumar: Okay, perfect. My last question is about the current trading environment. I mean, we are only at 14th of February, so just want to understand how the trading has been so far. And in terms of forward looking, how do you see the early summer trading. Do you see any positive moments in terms of the load factors versus how the load factors were at pre-COVID levels during the same time kind of thing? So basically just want to understand how the current trading looks like for the last period of winter and then early summer if you could please help on understanding in terms of yields, in terms of load factors, whatever you can see as of now?
Jaakko Schildt: Okay. I think during the pandemic we saw definitely a different kind of behavior on our customers. And the different behavior was that they were actually booking the trips very short to a departure date. On a positive note on this one is that we have seen that the kind of demand and the passenger behavior has been turning, I mean, relatively very similar, what it was prior to pandemic. And that is actually giving us an average that our prognosis and estimation models from the prior pandemic starts to a) work, b) be more precise, and so on. And currently the training environment, I mean, and the condition is looking very good. I mean, and I'm actually expecting very busy and profitable summer 2024 for Finnair.
Kristian Pullola: And of course kind of, that one needs to keep in mind that January and February, from a traveling point of view, are slow seasons. So, we are now in the midst of a low season from a travel point of view, but we are in a high season when it comes to sales activity. So a lot of summer is being sold now. So if you want to fly, now is a good time to book. And that gives us confidence that while traveling activity is low because of the seasonal reasons, the sales activity is strong, both demand as well as yield wise.
Achal Kumar: Perfect. Thank you so much and wish you good luck.
Kristian Pullola: Thank you.
Jaakko Schildt: Thank you.
Operator: [Operator Instructions] The next question comes from Mateo Salcedo Lopez from ODDO BHF. Please go ahead.
Mateo Salcedo Lopez: Yes, hello. Thanks for taking my question. I’m just trying to understand what’s your plan with the bond you have maturity in 2025? Are you trying to go through a bond, bond financing? Or are you considering some private loans?
Jaakko Schildt: Yes, thanks for the question. When it comes to further strengthening the balance sheet, we want to make sure that we act proactively. We have, in my opinion, done the right moves here. First putting profitability in place, then using the lever of share issue to improve the equity further through good cash flow, we’ve also been able to optimize the mix of debt. Now, yes, we will take a look at the 2025 maturities as the time is right. And I do see that the primary objective would be for us to try to finance ourselves in the capital markets as much as possible. One always needs to be also kind of working on alternatives, because those markets are not always open. But that’s the primary plan to proactively be in the capital markets to refinance the 2025 maturities.
Mateo Salcedo Lopez: Okay, very clear. Thanks. And then my last question is regarding your profitability. You are already above your 2025 target, as you said. How confident are you on being able to keep at least that level of profitability in 2024 and 2025?
Jaakko Schildt: So clearly, everything is up to the overall environment in which we will operate. But given the progress that we made during 2023, it gives us confidence that we have set the target at a level where we can achieve it. We will internally focus, as I said, on maintaining discipline on the cost side and establishing a continuous improvement culture where people in Finnair continues to be proud of operating the airline efficiently. And then the improvements that we’ve done on the sales side, both when it comes to more often getting directly to the customer and also being kind of good at dynamically managing prices. Those things will help. And in that sense, the target is as valid today as it was when we said it.
Mateo Salcedo Lopez: That’s very clear. Thanks a lot.
Operator: There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.
Erkka Salonen: Okay. As there are no further questions, we can conclude the call. Thank you for joining on all the excellent questions. We wish you a nice day.
Jaakko Schildt: Thank you.
Kristian Pullola: Thank you.
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