Building A New Silk Road Capacity Planning and Selecting Markets Greg Kaldahl SVP Resource Management 1
The Airline Industry Is In A State Of Constant Change Market cap ( bn) as of 1 Jan 1999 10 9.3 NA/EU Rest of world 8 7.0 6.5 6.4 6.4 6.1 6 4.9 4.8 4.3 4.2 4.0 4 2.9 2.7 2.5 2.1 1.9 2 1.8 1.8 1.7 1.5 0 Note: AMR is parent company of American Airlines, Sairgroup of swissair Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 26
The Airline Industry Is In A State Of Constant Change Market cap ( bn) as of 1 Jan 2005 10 8 9.4 NA/EU Rest of world 6.3 6 4.0 4 Bankruptcy process 3.6 Bankruptcy process 4.7 4.0 4.2 3.7 2 1.3 1.5 1.0 0.7 0.7 0.7 0 Acquired by LH 3.9 Acquired by DL Merged with AF Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 27
The Airline Industry Is In A State Of Constant Change Market cap ( bn) as of 1 Jan 2012 10 NA/EU 8 7.1 Rest of world 6 4 2 0 1.1 Bankruptcy process Merged with CO BA merged with IB Bankruptcy process 5.1 5.1 4.2 Acquired by LH Acquired by DL Merged with DL Merged with AF Merged with UA 0.6 5.4 5.2 1.2 2.6 Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 28
The Airline Industry Is In A State Of Constant Change Market cap ( bn) as of 1 Jan 2012 10 8 6 4 2 9.1 8.4 7.1 6.3 5.4 5.3 5.2 5.2 5.1 5.1 4.8 4.6 4.2 3.3 2.6 NA/EU Rest of world New in top 20 2.5 2.2 2.1 2.0 2.0 0 Note: Market value of Emirates estimated, LAN/TAM shown as combined entity Sources: Capital IQ, Bloomberg, Datastream, Analyst Reports, ECB 29
Finnair Is Changing As Well In Order To Succeed Narrowbody fleet optimization Nine aircraft removed from service Renegotiated leases with multiple Airbus lessors Total savings in excess of 10M Improved route planning and aircraft utilization New network forecasting and fleet planning tools Narrowbody utilization up almost two hours and over 9 hrs/day Partnerships for improved cost efficiency and flexibility FlyBe Finland provides lower cost base for turboprops and small jets 20 airplanes now under contract Fewer excess aircraft = more lease in opportunities 6
What Is Important Finnair s 2 Fold Strategy LONG HAUL Top-3 in Europe Asia SHORT HAUL Nordic Champion Global Network Offering Economies of Scale Large Home Market Strong Relationships with Travel Agents Brand Loyalty Programs Profitable Finnair Competitive Seat Costs Competitive Fares Flexible Cost Structure Rapid Market Entry & Exit High Aircraft Utilization Point-to-Point Operation Ancillary Revenue Internet Distribution Customer Oriented Agile Right Partners 7
Geography Provides A Competitive Advantage Nordics North Asia GOT BJS Above alps CPH HAM BRU South Europe BCN South Asia To: BJS vs. LH vs. EK vs. SK From: GOT -23% -52% -5% CPH -18% -48% 0% HAM -11% -43% 0% BRU -5% -38% 0% BCN +1% -23% 0% 8 Distance advantage to LH and EK Neutral: No significant distance advantage Distance disadvantage
Geography Provides A Competitive Advantage Nordics North Asia Above alps GOT CPH HAM BRU TYO South Europe BCN South Asia To: TYO vs. LH vs. EK vs. SK 9 From: GOT -21% -50% -4% CPH -17% -46% 0% HAM -11% -43% 0% BRU -5% -38% 0% BCN 0% -25% 0% Distance advantage to LH and EK Neutral: No significant distance advantage Distance disadvantage
Geography Provides A Competitive Advantage Nordics North Asia Above alps GOT CPH HAM BRU HKG South Europe BCN South Asia To: HKG vs. LH vs. EK vs. SK From: GOT -17% -26% -3% CPH -13% -23% +1% HAM -7% -20% +1% BRU -2% -17% +1% BCN +3% -6% 0% 10 Distance advantage to LH and EK Neutral: No significant distance advantage Distance disadvantage
We Have Successfully Exploited Our Geographic Advantage Toronto 5 New York 7 2012 Destinations: 13 Frequencies: 90 Tokyo 10 Nagoya 7 Osaka 7 Seoul 7 Beijing 7 Shanghai 7 Hong Kong 9 Chongqing 4 Bangkok 7 Singapore 7 Delhi 6 11
Long Haul Networks Depend On Exponential Effects B G E A C A B E D F H Results Four aircraft Four markets One market per aircraft D C Results Four aircraft Ten markets 2.5 markets per aircraft 12
Key Elements Of Market Selection Let s Examine Singapore 1 Traffic Flows 30 new city pairs High beyond demand Biggest Scandinavia to Asia route unserved by Finnair 2 3 Competitive Capacity Fare Levels Highly competitive Growing market High share of business travel 4 Trip Cost; Unit Cost Long haul drives lower unit costs 13
Key Elements Of Market Selection Let s Examine Singapore 1 2 3 Traffic Flows Competitive Capacity Fare Levels Sufficient demand Competitive product Attractive fare levels Reasonable costs 4 Trip Cost; Unit Cost 14
Leads To Overperformance vs. Plan 4000000 3000000 2000000 1000000 0 1000000 2000000 15 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 SIN Performance vs Original Forecast Original forecast Actual performance
Summary Finnair is a strong network carrier Capturing our share of traffic between Europe and Asia is critical to Finnair s success We are also striving for increased presence in the Nordics Our goal is to continue to profitably increase utilization and ruthlessly decrease costs leading to improved profitability 16