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Edited Transcript of FIA1S.HE earnings conference call or presentation 17-Jul-19 10:00am GMT

Q2 2019 Finnair Oyj Earnings Call

Finnair Jul 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Finnair Oyj earnings conference call or presentation Wednesday, July 17, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kasper Joukama

Finnair Oyj - IR Analyst

* Mika Stirkkinen

Finnair Oyj - CFO & Member of Executive Board

* Topi Manner

Finnair Oyj - CEO

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Conference Call Participants

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* Achal Kumar

HSBC, Research Division - Analyst

* Andrew Lobbenberg

HSBC, Research Division - Head of the European Transport Team

* Pasi Väisänen

Nordea Markets, Research Division - Senior Analyst of Utilities and Energy

* Rory Pike;Navat Capital;Head of Research

* Victoria Moores;Air Transport World;Editor

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Presentation

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Operator [1]

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Good day and welcome to the Finnair Q2 results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Kasper Joukama. Please go ahead, sir.

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Kasper Joukama, Finnair Oyj - IR Analyst [2]

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Good day, ladies and gentlemen. I am Kasper Joukama from the Finnair IR, and it's my pleasure to welcome you all to this Finnair Second Quarter 2019 Earnings Call. I have here with me Finnair's CEO, Topi Manner; and he will be joined by Mika Stirkkinen, our new CFO, for the Q&A session.

And now I will turn this call over to Topi Manner. Please, Topi.

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Topi Manner, Finnair Oyj - CEO [3]

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Thank you, Kasper, and welcome to you all to this earnings call also on my behalf. The overall headline for Finnair Q2 result was that we had a record number of passengers in Q2. At the same time, and you have probably seen some of the numbers, it is clear that we had some headwinds on the cost side, jet fuel, of course, being part of that, as always, and then some exceptional irregular costs on the maintenance side.

What we have also had done in connection to this Q2 is that to improve transparency, to improve predictability, also from your perspective, we are sort of providing you with more granular information related to jet fuel hedging and the hedge ratios as well as the hedging levels for the upcoming quarters, as stated, to improve the predictability and also to serve you better in making the analysis.

Going forward on the presentation, as stated, the passenger volumes increased to record high numbers in the second quarter. Our market share increased notably. Our revenue increased with more than 10% to EUR 793 million. At the same time, we saw the impact of global uncertainties in our business, especially in the cargo part of the business where we started to see some weakening of the demand environment toward the end of Q2.

In the travel services part of the business, in some tours, the challenged market situation continued, bringing the yields down, especially due to the overcapacity on that part of the market. After the Q2, it needs to be stated, related to the travel services, the bookings have come up quite significantly driven by the not-so-good summer weather in Finland especially.

As stated, our market shares increased notably both in Asian traffic as well as in European traffic. On the left-hand side, you see the Europe-Asia traffic category and the 5-year horizon for increased capacity and the 12-month rolling market share. And that is complemented with dots, the blue dot as well as the purple dots, indicating the Q1 2019 market share as well as the Q2 market share, which is based on April data. And here, we see that during the springtime during the first half of the year, our market share in Europe and Asia traffic category has been clearly above the rolling market share and then increasing quite notably.

And the same applies to the traffic from and to Helsinki. And of course, during the past 5 years, we have been seeing increased capacity from other players flowing into the Helsinki market. And now during the last quarter, we have been able to turn the tide in terms of market share development. And actually, in Q2, in terms of market share, we were higher than we have been during the whole 5-year period. We think that this market share development is an indication of our competitiveness out there on the market and also a good indicator for long-term profitability going forward.

If I just sum up the key numbers from Q2, our capacity increased almost with 15% measured with ASKs. Revenue increased with more than 10%, as stated. Comparable operating result amounted to some EUR 47 million. Net Promoter Score remained stable at 37. Loads were stable. Operating cost, plus 12%. And if we take the fuel out, the operating cost increased with some 9%. And as stated, if we take the jet fuel price, if we sort of isolate that jet fuel price as well as the impact of currencies and hedging level, that amounts to EUR 13 million. The passenger volume grew with 13%, pretty much hand in hand with the capacity. And as stated, the overall number of passengers amounted to 3.9 million during the Q2.

Looking into the various product categories in terms of revenue growth, the passenger revenue grew with more than 11%. That was supported by strong demand in the Japanese market, especially when it comes to the long-haul business. And in the short-haul business, the Nordic markets, we experienced and saw some good level of demand in Nordic markets. China and Germany as markets were more subdued, as we can see also from the macro data coming out of those markets. Ancillary sales grew faster than the passenger revenues, nearly 12%. So that's worthwhile to note. Cargo increased with some 6% driven by the capacity increases. But as stated, in this part of the business, we are seeing some softening of the demand environment on the back of the global uncertainties. And the travel services, I already largely covered.

So moving on. When looking into the RASK, unit revenue on group level, that was minus 3.8%. When we decompose that a bit, then North America and our increased capacity and traffic to North America is one of the most significant factors impacting the RASK development. We grew significantly the North American market with some 57% in terms of capacity. Revenue increased with 40 -- 49 -- 46%. And then there you have the RASK impact. Loads on the North American traffic have been strong. And also, when we look at our new Los Angeles route that we started at the end of March, on the third month of operation, that route is profitable.

So in traffic categories Asia and Europe, despite of the double-digit capacity increase, the RASK is holding up well, and then we are happy with that development. In the domestic part of the business, capacity is growing notably less. And here, we're also seeing some positive RASK development. So overall, when we look at the drivers behind the RASK, it is the mix effect coming from the North America and also cargo and travel services are impacting the RASK figure.

And it is indeed the traffic between Asia and Europe, our main strategy of connecting Asia and Europe that is the main driver of our revenue growth. Some EUR 56 million of the growth is coming from Asia and Europe. When we look at the other revenue, ancillary is driving the growth in that category. And on the ancillary part of the business, we definitely see growth opportunity -- accelerated growth opportunity going forward.

In terms of costs, yes, we covered the main things already. The jet fuel kicking into the volume increased with EUR 35 million, meaning 24%. And as stated, the impact of jet fuel price was EUR 13 million out of that. In the maintenance category, the irregular maintenance events, for example, related to engines where we needed to lease some additional spare engines would -- I would say that half of the maintenance cost increase would be accountable to these irregular events. Otherwise, the cost growth is driven by the volume growth, so increased flying effectively.

When we decompose the jet fuel price, EUR 22 million out of it is coming from volume. The price impact is the way you see it on the slide. The currency impact is increasing our cost with EUR 11 million in terms of jet fuel, and then the hedging impact is increasing our cost with EUR 10 million. So basically, we are gaining from hedges during Q2 this year with EUR 12 million. But in the comparison period of Q2 last year, we gained EUR 22 million, and that delta of EUR 10 million is increasing our cost right now. Also, the increased CO2 emission trading fees, they are included in the jet fuel price. When we look at Q2 last year, we paid some EUR 1.5 million in terms of emission trading costs. And for this quarter, the cost was EUR 5.1 million, reflecting the increased price of emission trading units in EPS.

Now turning to fuel hedges, this is something that we are now disclosing in terms of hedging levels for the first time. The hedging ratios for the remainder of the year are above 70%, as you see in the lower right-hand corner of the picture. And then the average price for our hedged position for the third quarter of this year is $660 per ton. And for upcoming 3 quarters after that, we are in the neighborhood of $680 per ton.

In terms of balance sheet, I mean during the quarter, we received one new Airbus 350 that we basically financed out of our cash position, and that impacted the figures a bit. The liquidity of the company remained strong. Equity ratio, gearing indicate a healthy balance sheet. So not much more to say -- state about that one.

In terms of customer offering, Q2 was a good quarter for us. We just recently released a new route and destination to South Korea, to Busan, which is the second largest city in South Korea with some 3.5 million inhabitants. And if we look at the whole catchment area of Busan, there is some 8 million inhabitants. We are the first European airline flying to Busan, and we think that it is an exciting leisure destination and definitely also a strong destination for business travelers. Many Nordic European companies are having important sites in Busan. It is an industrial hub of South Korea and also the sixth largest port after Hong Kong in the world.

We are also increasing frequencies to Beijing. We start a service 3 times per week to new Beijing Daxing Airport already during the winter season. And during the winter season this year, we will be flying 10 times per week to Beijing, both to Beijing Capital Airport as well as the new Beijing Daxing Airport. During the quarter, we also announced our new codeshare partnerships with China Southern and Juneyao Airlines. And these are important elements of our continued strength and presence in China and then important in terms of our strategy from that perspective.

We grew customer experience by sort of opening our new non-Schengen lounge, which is nearly complete by now, also a new Platinum Wing for the most frequent travelers with Finnair. And we have been receiving a lot of good and positive feedback out of this from the customers. We have now completed the installation of our Wi-Fi network in the European Airbus fleet and also receiving good feedback from the customers. This is also starting to be increasingly visible in our ancillary sales.

Finnair.com is something that we have now rolled out to all of our market, the new finnair.com site. And the early results of sales conversions, for example, are encouraging. We are also for the 10th consecutive year voted the Best Airline in Northern Europe by Skytrax.

So going forward, I mean we will be working with operational efficiency, and we will be paying increasing attention and focus to operational efficiency. We think that, especially in terms of integrated airline planning, the way we collaborate and optimize between network planning, traffic planning, resource management, flight operations, operations command control, we can gain productivity and gain efficiencies through optimization.

Similarly, we will simplify our processes. We will automate our processes in areas such as customer claims handling. And definitely, we will be using also technology to boost productivity. Finnair.com is one example of that. The distribution efficiencies through new distribution capability, and that technology is another example. And then AI use cases in terms of improved situational awareness, more precise weather forecasts are something that will be helping us to improve our punctuality and reliability.

In terms of outlook and in terms of guidance, where we are. We are updating our guidance as we normally do during the Q2. And on the back of us opening the new service to Beijing Daxing Airport, we are increasing our capacity guidance to 11% to 12% during this year from the 10% that we indicated at the start of the year. We still expect the revenue to grow at a somewhat slower pace than capacity in 2019. So there, the wording of the guidance remains unchanged from the previous guidance.

When we look at the bookings for Q3 and the sales for Q3, we see a robust development, and that is, of course, important. Q3 is seasonally the most important quarter for us. At the same time, the weakening demand environment in cargo also needs to be acknowledged. To sum this up, when we look at the comparable operating result for the full year, we expect that to land within the range of 4.5% to 6% of revenue, assuming that there are no material changes in fuel prices and exchange rates.

So to wind up this presentation, what I would like to do is to invite you to our Capital Markets Day on 5th of November in Helsinki. So please save the date. And we have been working with strategy updates starting from spring, and we continue that work through the summer and early fall. And then we are getting ready to update also our long-term financial targets. And we will elaborate on our business plans on areas such as sustainability, retailing, operational efficiency in this Capital Markets Day. So I would like to welcome you all to that day, and I'm looking forward to seeing you there.

So this was the sum up of the Q2 for Finnair. Thank you.

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Kasper Joukama, Finnair Oyj - IR Analyst [4]

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Thank you, Topi. We have now time for some questions. As mentioned, Mika Stirkkinen, our new CFO, is here as well. So yes, please, we are open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Rory Pike from Navat Capital.

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Rory Pike;Navat Capital;Head of Research, [2]

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This is Rory Pike from Navat. I just have a quick question regarding how you described the competitive environment in Europe where you say that competition increased. But if I look at the capacity growth in the market, as you sort of disclosed it, the growth has slowed a lot. And then secondly, if I look at your market share, that implies, in fact, that the competition capacity in Europe declined, which is sort of consistent with both I think the IR scheduling data I've seen and also Norwegian's capacity. So it would be helpful just to understand, when you say competition increased, what does that mean?

And then just secondly, given the dramatic slowdown in capacity growth both from you and the sort of contraction from Norwegian, were you a little bit disappointed by the pricing that you were able to achieve in the quarter? Or that would have been consistent with your expectations given the capacity environment?

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Topi Manner, Finnair Oyj - CEO [3]

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Thank you. Thank you for the question. If I start from your latter point, and then Mika can perhaps continue with the European yields. But if I sort of reflect on the sort of overall yield development now during the quarter, I mean pretty much the same story that we already went through with the RASK, applies to yield as well. So when looking at the yields, we need to take into account the mix effect, especially the growth in North America. That is a little bit sort of lower-yield business. It's still profitable.

The other thing that we need to keep in mind is that Q2 last year, the FIFA World Cup took place in Russia, and that generated some high-yield business for us in the comparison quarter. And this is one of the impacts that we need to keep mindful of or be mindful of. So all in all, the yield during the quarter developed very much according to our expectations, also keeping in mind that we are increasing our capacity significantly.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [4]

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If I continue. Hello, all. This is Mika Stirkkinen. So in regards to European traffic, and now I'm talking about the traffic that took place intra-Europe, so originating indeed in Europe. So in the Nordic market, we saw some big development into other Nordic capitals with increment. So there, we had a nice new development, nice RASK development. On the other hand, to certain cities elsewhere in Europe, we saw vacancy.

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Topi Manner, Finnair Oyj - CEO [5]

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So the competitive environment in Europe is a little bit twofold, a little bit different story in the Nordics. And then when we look at the remainder of Europe, then we see yield pressure.

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Rory Pike;Navat Capital;Head of Research, [6]

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Understood. Okay. But just to clarify, in the sense when you say you see competition increased, I guess out of Helsinki, the biggest -- apart from you, the #2 market share is Norwegian, and their capacity is now shrinking in Helsinki. So are you seeing -- where are you seeing specifically the competition increase coming from?

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [7]

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So if you look at the schedules of other carriers who tend to price low, and so you can guess where we got that kind of yield pressure. It's not always directly related to the capacity growth. It's related to the pricing actions by the competitors. So...

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Operator [8]

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We will now take our next question from Victoria Moores from Air Transport World.

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Victoria Moores;Air Transport World;Editor, [9]

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My question is whether you could give us an update on whether you've seen any movements on the narrow-body renewal, please.

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Topi Manner, Finnair Oyj - CEO [10]

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Sorry, there was a little bit of an echo now on the line. So I detected the word narrow-body, but not more than that. So could you please repeat?

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Victoria Moores;Air Transport World;Editor, [11]

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I was asking whether there's been any update on the narrow-body renewal, whether that's moved forward at all.

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Topi Manner, Finnair Oyj - CEO [12]

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Yes. As stated, I mean we have been stating this to media throughout the spring that we see the narrow-body renewal as the biggest investment of Finnair of the next decade. And at the same time, it is the environmental investment of the next decade. And we are taking our time to prepare that carefully. And then for the time being, I have no timeline to share around the narrow-body renewal, but it's not likely to come in the immediate near future.

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Operator [13]

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(Operator Instructions) We will now take our next question from Andrew Lobbenberg from HSBC.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [14]

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Can I ask for a little bit more understanding of the reduction of the RASK on the North Atlantic? I appreciate we've got really high-capacity growth. And there's also a big baseline effect as well as you're adding a lot of capacity to California and that you're happy with [that load], turned profitable out of the box, which is nice. But I mean are you seeing load unit revenues decline on incumbent routes that are stable? Or is that looking okay? Is there a mix effect between business and [levers and less] front-end to the West Coast or whatever? Just trying to understand how disturbed we should be by that drop in RASK on the North Atlantic.

Then separately, on capacity, you're clear that the world and the macro environment is getting less clear as we go into winter. Why aren't you cutting capacity rather than raising it? I see there's the opportunity to add trips to the new China, Beijing airport, and I see the logic of that. But surely, the rational risk-averse thing would be to reduce capacity overall rather than to increase your rate of growth.

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Topi Manner, Finnair Oyj - CEO [15]

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If you, Mika, start with the North American item, I can take the capacity.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [16]

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Sure. As you know, when you add kilometers, the RASK tends to decline, and that's visible in the LAX. Otherwise, we are happy with the other part of our Atlantic business. So the other 3 routes during Q2 performed nicely with the flat RASK.

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Topi Manner, Finnair Oyj - CEO [17]

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Yes. And then when it comes to your question about the global uncertainty and the capacity increase, as stated, I mean the capacity increase that we will be doing, that will be allocated to Beijing Daxing and also going forward to new promising routes like Busan, also some added flights to Asia. And we see the demand for those being robust. As stated, if we look at the RASK development in Asia and Europe, despite of the capacity increase, the RASK holds up well. So we simply see business opportunity in this one.

At the same time, it needs to be stated that when we take a sort of little bit longer look at the capacity growth, looking into foreseeable capacity growth of 2020 and onwards, then we will be moderating our capacity growth to respond to the uncertainties that we see in the global economic development. And that is in accordance with our longer-term fleet planning. So the ASK growth that you are seeing this year won't be materializing as such during 2020.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [18]

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And if I may add to Topi's comments. So in H2, the ASK growth is slightly, well, technical because it's related to the [space-length] increase. And partly, it's due to the typical traffic planning optimization where you swap aircraft -- swap tails, I mean, in regards to the size. So where we have higher demand, we increase the size of the aircraft. So that has happened on the longer-sector route, so that increased the ASK. Actually, the number of landings -- or the landings growth is quite modest in H2 because it's less than 5%.

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Topi Manner, Finnair Oyj - CEO [19]

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And finally, if we would be seeing shocks in demand on the market during the second half or further than that, then of course, we always stand ready to adjust our capacity. And then, therefore, we are certainly sort of observing -- absorbing the development. But as stated, we are happy with our capacity growth for the second half, and then we think that, that will be supportive to our profitability.

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Operator [20]

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We will now take our next question from Achal Kumar from HSBC.

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Achal Kumar, HSBC, Research Division - Analyst [21]

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I just want to understand a couple of things. So one, as you mentioned that most of the new capacity, you will add on the Asia route. So just want to understand, what sort of growth that you see? So in the first half, you reported 12% capacity growth in Asia. For the full year, how do you see -- what sort of growth you see on Asian networks? And then if that is the case, I mean there's lots of capacity coming into Asia, how do you see the RASK development? The -- I mean, so in the first half, despite the capacity growth of 12%, your RASK was down 0.7%. So overall, I just want to understand how the trading environment looks like on Asia. That is my first question.

Secondly, I -- really bit of a modeling question that -- so you have restated 2018 (sic) [2019]. And on the restated number, the dividend yield, which was about 23% -- sorry, the dividend payout was about 23%. And on the restated number, it comes out to be 35%. So how -- I mean, so is there any policy which you will follow in terms of dividend payment? Do we assume it will be 35%? Or how do we see that?

The third thing I wanted to understand on -- I mean, so previously, I still remember, you used to have a target in terms of we will have X number of passengers or X number of growth in terms of passenger on Asia in 2020. Similarly, you had some target in terms of ancillary revenue for passenger basis for 2020. Do you still have those kind of targets? And if you have, where are we in terms of on those targets?

And the last thing I wanted to understand, you had mentioned in this quarter, you have booked some one-off maintenance costs. What is that? And how do we see that going forward?

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Topi Manner, Finnair Oyj - CEO [22]

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Okay. Quite many questions, so you will probably need to remind us of all the questions when we go forward. But if I start from the long-term financial targets and the passenger numbers. I mean as stated, in connection to me sort of inviting you to save the date for the Capital Markets Day. We are updating our strategy as we speak, and then we will be updating also the long-term financial targets going forward, and that will be a key part of our Capital Markets Day. So I hope that, that addresses that part of the question.

When we look at the trading environment in Asia on the overall, I think that, as stated, we are happy with our capacity increase on the Asian market. We see overall the market performing. So the RASK is holding up well, especially if we take into account the double-digit capacity growth. At the same time, Asia is not one thing. So we see some variation between countries in Asia. Japan has been performing strongly.

And in China, a little bit more subdued environment. We, at the same time, take note that the situation and the demand environment that we see in China has been stable. And also the sort of recent macro data from China also in terms of industrial output, in terms of retail sales is stable. And when we look at the forward sales for that part of the business, it seems to be neutral from our perspective. So that was probably the long-term financial target as well as the trading environment in Asia.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [23]

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If I may add on Asia. So the tax side, as Topi said, it looks robust, whereas the big question mark is the cargo side of the business on Asian routes. So that's where the visibility is nonexistent because, as you may know, the booking horizon in the cargo business is only 21 days. So -- and the latest development, especially in June, was weak. If I take the maintenance...

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Topi Manner, Finnair Oyj - CEO [24]

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Yes, please.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [25]

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So the maintenance cost, roughly half of the increase in maintenance cost can be said to be incremental against run rate. So there were a couple of -- there was one accounting technicality that was related to the discount rate. We need to discount the future payments of leased aircraft -- maintenance reserves related to the leased aircraft. So when the U.S. dollar 5-year rate declined, so we -- the present value went up and, hence, we need to accrue more compared to the previous quarters, and then some exceptional maintenance items for which we haven't accrued costs against.

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Topi Manner, Finnair Oyj - CEO [26]

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And these were the engine-related things that I mentioned.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [27]

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Yes, especially engine. I can't remember any other questions.

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Topi Manner, Finnair Oyj - CEO [28]

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Exactly. I mean we are probably not covering all of your questions now. So could you please remind us of the questions that we did not cover?

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Achal Kumar, HSBC, Research Division - Analyst [29]

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Yes. So the one was on the dividend payout, please?

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Topi Manner, Finnair Oyj - CEO [30]

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Yes. On that one, I would just shortly say that I mean we have a communicated dividend policy, and we stick to that dividend policy. So that's where we are.

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Operator [31]

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Sir, it appears there are no further questions at this time.

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Kasper Joukama, Finnair Oyj - IR Analyst [32]

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Yes. We have one question coming online, I guess, or a couple of questions from Jaakko Tyrväinen in SEB. Well, one being, could you elaborate a bit more on the 2020 capacity outlook, for example, a more specific timing of the arrival of the 2 Airbus 350s?

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Topi Manner, Finnair Oyj - CEO [33]

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Yes. I think that, I mean, for the purposes of this call, as part of our longer-term outlook, I mean what you could expect is that our capacity growth in terms of ASK will be moderated notably next year. So we will be bringing it down to single digits, and it's not going to be high single digit. So that would be what I could say on the capacity outlook on the overall. It is also something that we are prepared to update you more precisely on in our Capital Markets Day.

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Kasper Joukama, Finnair Oyj - IR Analyst [34]

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And then the next question is, how much of the capacity increase in Europe and North America came from the new routes in Q2?

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Topi Manner, Finnair Oyj - CEO [35]

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On this one, Mika.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [36]

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The -- actually, what we -- it's not a completely new route, but Lisbon on European side, it's a long sector and the increase is there. Its ASK share is quite sizable. Once again, you need to understand that one landing in domestic is the same as one -- sorry, 45 landings in domestic traffic is the same as 1 landing in Asian traffic. So that's the ratio there. That applies to H2. So when Airbus, we fly with the big aircraft and long distances, then the ASK share is really substantial. When it comes to LAX, LAX's ASK share of the total is more than -- it's between 1% and 2% of the total ASKs of the Q2. So it's really sizable in terms of ASKs there in LAX.

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Kasper Joukama, Finnair Oyj - IR Analyst [37]

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Okay. Jaakko, any follow-ups on those answers? No? It seems that we are good. Is there any other questions coming up?

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Operator [38]

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Sir, yes. I have one question. So it is from Pasi Väisänen from Nordea Bank. Shall I take this up?

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Kasper Joukama, Finnair Oyj - IR Analyst [39]

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Yes, please.

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Operator [40]

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Sure. We'll take up this question from Pasi Väisänen from Nordea Bank.

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Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [41]

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This is Pasi from Nordea. (foreign language) But just a few short questions. Regarding the third quarter '19, are we still going to see the same weakness actually witnessed -- already seen in the first quarter and second quarter?

Then you speak about the cargo traffic, but it's only about 9% from the group level. Could you actually specify what's the pressure point for your Asia connects? I've just been looking at the cargo, if that's going to be a kind of excuse for the lower earnings or profitability.

And then looking out to China, I mean we have seen kind of news related to economic weakness in the area. But could you actually please specify what would be the more specific trick for new passenger demand or growth into China rather than the economic growth figures?

And then lastly, you actually released the new figures for hedging and hedging price. And when calculating those to the total (inaudible) I guess it is -- is it going to be a fair assumption that in the future, now that the growth in fuel costs in terms of kind of nominal euros is going to be a bit slower than in the growth in top line? So is this kind of analysis true or not? That was all.

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Topi Manner, Finnair Oyj - CEO [42]

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Yes. I mean Mika, if you start with the...

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [43]

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If I start with the fuel, we can't promise that the fuel bill growth rate is slower than the revenue growth rate. That's what we can say. You need to remember that, as you can see from Q2 '18 against Q2 '19, so last year, we made gains on hedges. And this year, we made a gain but to a lesser extent. So you need to take that into account when you model the fuel cost. And additionally, in the presentation when Topi went through the fuel bill, there was an increase in the emission costs by EUR 3.5 million in Q2 '19 against Q2 last year. So that adds up to that, and that's posted in the fuel costs line.

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Topi Manner, Finnair Oyj - CEO [44]

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Good. And then could you please repeat the question on China so that we can get our hands around that?

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Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [45]

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Oh, yes. I mean regarding China, I mean we have seen that the figure is related to economic growth or weakness in the area. But when looking at passenger growth for your routes, what's the most specific trigger you offer in that, what's the kind of thing we should be looking at? And then, of course, what's the cargo share in your Asian connections?

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Topi Manner, Finnair Oyj - CEO [46]

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So specific trigger, I mean there is no specific trigger for the China market as such. I mean we are, of course, following each route and optimizing each route on an ongoing basis. And in China, we are in it for the long run. And the Beijing Daxing division is an important division for us. We will build long-term opportunity with that route. Also, improving our presence through the codeshare partnerships with China Southern and Juneyao are important for us. So China is a strategic play for us, and that would be something that I would like to underline in this context.

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Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [47]

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Okay. That's understood. But regarding the cargo traffic, so I mean 9% from the group level, but what's the cargo share when we look at the Asian connections?

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [48]

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Well, I can help you a bit. So drastically more cargo than European and domestic traffic. So you can -- I guess you can do the math. So it's mainly long haul. When you look at our report, you can see what was the cargo revenue and you can analyze it.

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Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [49]

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Okay. Yes. And if I may lastly, just going back to your announcement where you say that the outlook for the third quarter is strong. But well, are we still going to see the same weakness in the third quarter than already seen in the first or second quarter? Or did you actually guided a bit healthier kind of environment for the third quarter in your announcement?

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Topi Manner, Finnair Oyj - CEO [50]

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Yes. I mean when you say weakness in Q1 and Q2, I mean what...

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Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [51]

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I'm looking at operating profit compared to the year earlier period.

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Topi Manner, Finnair Oyj - CEO [52]

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No, I think that I mean our guidance for the remainder of the year is pretty clear and it's pretty clearly articulated in that one. And as stated there, when we look at the forward sales for Q3, the passenger revenue is robust, less visibility on cargo, as Mika stated. So that is where we are.

On the cost side, I think that we have been very transparent on the jet fuel price. So you can calculate that with the additional information for Q3 and Q4, and then on items like maintenance costs where we are seeing half of the maintenance cost increase being irregular for this quarter only. So we don't -- while we -- while exceptional cost, by definition, can secure on occasion, we are not seeing those costs being repetitive.

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Operator [53]

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Sir, it appears there are no further questions at this time. Sir, I would like to turn the conference back to you.

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Kasper Joukama, Finnair Oyj - IR Analyst [54]

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Okay. Thank you all. We appreciate your questions and your time. And if any further questions comes into your mind, please feel free to send us some questions, and we will answer them as soon as possible. And I'd like to thank you from our behalf now. Thank you.

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Topi Manner, Finnair Oyj - CEO [55]

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Thank you. Enjoy the summer.

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Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [56]

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Thank you.

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Topi Manner, Finnair Oyj - CEO [57]

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Bye-bye.

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Operator [58]

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This concludes today's call. Thank you for your participation. You may now disconnect your lines. Thank you.