U.S. Markets open in 4 hrs 43 mins

Edited Transcript of FIA1S.HE earnings conference call or presentation 7-Feb-20 11:00am GMT

Q4 2019 Finnair Plc Earnings Call

Finnair Feb 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Finnair Plc earnings conference call or presentation Friday, February 7, 2020 at 11:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Erkka Salonen

* Mika Stirkkinen

Finnair Oyj - CFO & Member of Executive Board

* Topi Manner

Finnair Oyj - President, CEO & Member of Executive Board

================================================================================

Conference Call Participants

================================================================================

* Achal Kumar

HSBC, Research Division - Analyst

* Jaakko Tyrväinen

SEB, Research Division - Analyst

* Pasi Väisänen

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Erkka Salonen, [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen. I am Erkka Salonen, from Finnair IR. And it's my pleasure to welcome you all to this Finnair Fourth Quarter and Full Year 2019 Earnings Call.

I have here with me Finnair CEO, Mr. Topi Manner as well as Mr. Mika Stirkkinen, Finnair's CFO, for the Q&A session. And now I will turn this call over to Topi Manner. Please, Topi.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [2]

--------------------------------------------------------------------------------

Thank you, Erkka, and good day to you all. Thank you for joining us on this call. So yes, we are posting today a strong Q4 result. And of course, with that a full year results. But before going into that one, the hot topic, of course, currently is the coronavirus. So I'd like to start with a quick update on the corona situation and how we are seeing that. And then after that, going into Q4 financials.

So I think that when speaking about coronavirus, to start with, we should remember that this is especially a human health crisis. Currently seems to be concerning China and especially the region of Hubei and city of Wuhan. And we in Finnair, we stand ready to [support] our customers, especially the Chinese customers, our employees in China and also our partners in China, and that we have been doing, for example, by sending medical supplies to our partners because, as you know, there is a shortage of medical supplies such as facial masks and hand sanitizers and things like that.

We, as many other airlines across the world, suspended our flights to mainland China last week, but we carried on until yesterday in order to bring our Chinese customers home to China from Europe after the Chinese New Year and also bringing our European customers from China back to home. And that we have been doing during the past couple of days until yesterday, and that has been well received by our customers as well as employees.

So in terms of cancellation, that is amounting to approximately 200 flights up until end of February, when it concerns our Beijing and Shanghai routes, and then up until end of March, when it comes to Guangzhou, Beijing, Daxing and Nanjing routes.

As we have been stating earlier, the direct financial impact of this situation until end of March, and also assuming that China flights would remain to be suspended until end of March, is relatively limited for us. We are reiterating that comment today. And this is simply because the weeks after Chinese New Year are also typically, in a typical situation, slowest weeks of the year, and they are also the weakest in terms of profitability.

The way the situation will unfold from here and develop from here remains to be seen. The visibility is low, and then it can swing basically either way. And that is something that we are taking into consideration in our guidance for this year.

What is clear, however, is that eventually this will pass. And if we look at the experiences from SARS and similar viruses in the past, I think that the conclusion is clear, and the conclusion is that the situation is of temporary nature. And when the recovery starts, then the recovery will also be relatively fast in terms of global aviation.

In situations like this, we at Finnair, we manage for the long term. And we stick to our strategy. It is about sustainable, profitable growth for us. We stick to our initiatives and to our targets related to our strategy, and we carry on focusing on those initiatives, implementing those initiatives, including our planned investments.

With respect to China, that means that we remain committed to China over the long term. In our strategy, it has an important role, and China is our third biggest market after our whole market of Finland and Japan. Some 9% of our capacity is directed to mainland China routes. So we want to keep our slots in China, and we want to maintain our long-term presence in China.

If this situation prolongs, and that we really do not know at this point in time, I don't think that that assessment can be made as of now, we will make some smaller tweaks, tactical adjustments, if you will, to our summer season schedule with individual flight frequencies and so forth. But all of that will be done in the context of maintaining our longer-term presence to China.

And then I mean the tactical measures that we have been taking, I mean there would be, of course, many, many small measures that we are doing. One great example would be that we were supposed to take delivery of 1 Airbus 350 in April, and now we have been postponing that delivery for 2 months in collaboration with Airbus.

So in terms of the outlook and guidance, what we are stating in terms of guidance is that we experienced a good business momentum, strong business momentum, especially in our European traffic during Q4, also in January, and we are currently seeing that strong momentum continuing in Europe.

We are reiterating, as stated in comments, that direct financial impact of coronavirus during Q1 is relatively limited. And on the back of mainland China route suspension, assuming that that will continue until end of March, and on the back of postponing the Airbus 350 delivery, we estimate that our capacity during this year will increase approximately 4%, falling to the midpoint of the range that we communicated in our Capital Markets Day, basically, range of the growth being between 3% and 5% during the next strategy period up until 2025.

Due to the decreased visibility of the coronavirus, we will come back to more specified guidance in connection to our Q1 report in April. But what can be stated about current sales and the current flow of bookings, we, of course, following that very, very closely on an hourly basis. And [as such], we see the strong momentum continuing in the European traffic. And when it comes to sales and flow of bookings in Asian markets outside of mainland China, markets like Japan, South Korea, Asia Pacific, Thailand and Singapore, India, we see the bookings coming in a usual fashion. So that was the quick update on corona, and then we can definitely come back if you have further questions.

Then moving into Q4, and as said, the overall headline being that year 2019 was a volatile year for us, but it ended with a strong quarter. And you know the volatility and the reasons for that, U.S.-China trade war impacting us, especially our cargo business. Brexit definitely was a theme during the year. The MAX8 situation impacting the capacity on global aviation. We also went through some industrial action by unions, experienced 1 day support strike during Q4, there was [air space] restrictions. We had the unrest in Hong Kong and so forth.

Year 2019 will also be remembered of the discussion related to climate change and that hopping to political agenda, and sustainability took a center stage in many ways in the discussions related to aviation. In the midst of all of this, we continued our strong growth. We -- our capacity grew with 11%, more than that, and with that of medium size and bigger airlines in Europe, we were one of the fastest growing. We carried a record number of passengers, 14.7 million passengers. And due to growth, our net number of employees increased with more than 1,000.

So looking into the full year key figures. I mean revenue increasing more than 9%, close to double digits. Comparable operating results landed at EUR 163 million. That is to be compared with EUR 218 million the previous year. Majority of the difference is attributed to jet fuel price increase, including the hedges. Then customer satisfaction developed favorably. Our Net Promoter Score for the full year was 38, and that is comparing well with our peer group of airlines. So good development on that one, especially towards the end of the year. And passenger volume growing double digits.

Looking into Q4 isolated, Q4 was the strongest quarter on relative terms for the year for us. Revenue increased with more than 13%. We carried 3.5 million passengers, more than 100 flights to Asia on a weekly basis, opening new routes like Beijing Daxing and Sapporo in Japan, which has been very well received by our customers. And our original plan was to introduce that as a seasonal winter route, but now we are right away extending that to be a full year route, also covering the summer.

In cargo business, the operating environment remains to be challenging. But on relative terms, under these circumstances, we are doing well on that one as we are keeping and increasing our market share.

In terms of travel business, Suntours was, again, Finland's largest tour operator and increasing its market share. So those would be some of the highlights related to Q4.

If we look at Q4 in terms of the numbers, the operating results landed at EUR 31 million. The comparable number last year was EUR 26.5 million. That includes a one-time income booking of EUR 11 million from so-called pilot long-term incentive cancellation.

And then what would need to be remembered is that, well, obviously, the fuel price development is impacting the comparison, as per usual, in Q4. The fuel price, including hedges, increased with EUR 12 million in comparison to previous year. And then the impact of the support strike, the 1-day support strike in Finland, amounted to some millions of euro, let's say, EUR 3 million to EUR 4 million. So that is also something that should be taken into consideration when -- in reading the results.

Updated customer satisfaction improved towards the end of the year again. The NPS score was 41 for -- through Q4.

Our market shares are improving in the Asian traffic, edging upwards a bit. And then in the traffic -- the European traffic to and from Helsinki, our market share is strong, and it has been strengthening during the past quarters, and now we are back on the levels of year 2016, year 2017, the years before the LCC started to increase capacity in Helsinki. But that is something that we are very happy about.

When we look at the passenger revenue and the various revenue categories, it is really the passenger revenue that is driving the growth with 16% and especially the strength of the European traffic is visible here. Also North American routes performed well. Ancillary improved with close to 14%. Of course, in line with the increasing number of passengers but then also the ancillary revenue per passenger grew to EUR 12.7 and then we took a clear step forward on that one.

If we look at the revenue development more closely, combination of improving load factors and clearly improving unit revenue across our traffic categories is -- that is the biggest driving factor behind the strong results. European traffic, I said it was price (inaudible), especially, we increased our capacity with 7%. And the unit revenue RASK improved with 10%. In North America, we improved -- increased our capacity with 1/3, and unit revenue increased with more than 4%. And as you would know, with this kind of capacity increase, the unit revenue increase is not as typical. So we are very happy about that development.

In Asia traffic our capacity increased with 11% and unit revenue also edging upwards a bit. And this is also something that we are happy about because we were a little bit weighed down by the unrest in Hong Kong. At the very end of the day, actually impacted our loads and the revenue less than we anticipated during Q4. So all in all, unit revenue developing well across the board, and across the traffic categories, most notably in Europe. And that has been visible in the sort of geographical take on the revenues. So developing well across the board, but most of it's been coming from Europe this time around.

And when we come into costs, in our strategy, we have clearly stated that we aim to have constantly and gradually decreasing unit cost, excluding fuel, excluding the currency fluctuations. And during Q4, our unit cost measured this way, increased 1.3%. This is something where we clearly have a job to be done going forward. And that requires continued relentless focus on costs. I mean of the initiatives that we have already started out to do, focusing on-time performance, not only optimizing and improving the arrival punctuality but also enabling us to optimize our costs, putting a lot of focus to weight and fuel, fuel efficiency, automization and digitalization of our purchases, and general being very cost-conscious, stretching the penny across our organization.

Yes. Fuel cost, I think that we covered largely already. So the hedging policy remains as you see on the slide, and when it comes to Q4, the impact of the fuel price was EUR 12 million, as I stated a moment ago.

In times like this, with coronavirus, having a strong cash position and healthy balance sheet certainly helps a lot and enables us to manage for the long term. So together with the strong momentum in European traffic, the booking flow from markets outside mainland China, in Asia, the balance sheet provides us firm ground to stand on. And during Q4, our equity ratio increased to 25%. The gearing went down to 65%. And this will be enabling us to continue with our investments. So while we -- we estimate that our currency investments for this year will be in the ballpark of EUR 430 million.

Then moving to customers. The customer satisfaction improving, clearly, towards the end of the year. 41 is the number that we are happy with. It has been continuing upwards in January. We have been bringing a lot of new things to our customers. One example would be new lounges at the Helsinki airport, the new business lounge and the new Platinum Wing and these are genuinely beautiful lounges. And then we have been receiving a lot of good feedback from our customers, especially the business travelers and the frequent travelers.

We have been also investing into customer communications and disruption management. That came in handy when we had the 1-day support strike and had something like 40,000 passengers on that day, so we were able to cope with that situation in a good fashion and also minimize the profitability impact, doing successful revenue capture. And then we have been investing quite a bit into digital services during the year, so new features and functionalities to our mobile app. There the Net Promoter Score is 68. We also have been successfully rolling out the new dot com site, Finnair.com, in 35 markets with 16 languages; it has been quite a significant undertaking. And this is an important enabler in our quest to be a modern premium airline, doing more direct sales, being able to offer more choice to our customers, being able to personalize the offering for our customers.

And in times like this, we stay focused on the long term. We continue in accordance with our strategy. We want to grow in line with the market growth, and we believe that the 4% capacity increase will be doing just that. We will strengthen our offer. We will work with efficiency, aiming for constantly, gradually decreasing [task], and we remain committed to our Asia strategy, including mainland China.

We also have made a significant commitment related to sustainability, going for long-term carbon neutrality, putting in place a road map for long-term carbon neutrality, and that sustainability plan we will be making public separately in some weeks.

So coming back to the outlook and guidance, I think that I covered already the main points. What should be noted is that we are proposing a dividend of EUR 0.20 per share, and that equals a dividend payout ratio of some 40%. And this is a single thing that we believe in our business, we believe in the profitability prospect of our business. And that is why we are doing the 40% payout instead of minimum payout of 1/3 of our dividend policy.

So that pretty much covers the Q4. And with that the full year. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Erkka Salonen, [1]

--------------------------------------------------------------------------------

Thank you, Topi. Are there any questions?

--------------------------------------------------------------------------------

Operator [2]

--------------------------------------------------------------------------------

(Operator Instructions) We will now take our first question from Jaakko Tyrväinen from SEB.

--------------------------------------------------------------------------------

Jaakko Tyrväinen, SEB, Research Division - Analyst [3]

--------------------------------------------------------------------------------

Jaakko from SEB. Could you elaborate a bit more on the demand outlook in Asia, especially the routes, except the mainland China? How are the bookings developing currently? If I understood correctly, you're not seeing any signs of softening due to coronavirus or the Hong Kong riots?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [4]

--------------------------------------------------------------------------------

Yes. I mean if we decompose that a bit -- thank you for a very good question, relevant question. As stated, we see the strong business momentum in Europe continuing. You have potentially seen our January traffic figures and demand continued to be strong in January. And as stated, we are following bookings, the flow of incoming bookings, on an hourly basis. And just as of now, the outlook is -- Europe remains to be strong. Market outside mainland China, in Asia, are developing normally. In Hong Kong, we, of course, have the situation that we have been weighed down by the unrest during the Q4. And then there's no positive change in Hong Kong related to that. But at present, situation today is that we see the bookings coming in normally and the strong momentum in Europe continuing.

--------------------------------------------------------------------------------

Jaakko Tyrväinen, SEB, Research Division - Analyst [5]

--------------------------------------------------------------------------------

Okay. Excellent. But then, in case you might see a softening demand elsewhere than mainland China, could you temporarily adjust your capacity? Or are you obligated to operate those routes?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [6]

--------------------------------------------------------------------------------

To outside mainland China or...

--------------------------------------------------------------------------------

Jaakko Tyrväinen, SEB, Research Division - Analyst [7]

--------------------------------------------------------------------------------

Outside mainland. For example, Hong Kong or some Japanese routes?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [8]

--------------------------------------------------------------------------------

In the case of Hong Kong, the authorities in Hong Kong, including the airport of Hong Kong, they have already lifted their slot criteria. So in Hong Kong, if that situation will be materializing, we would be able to adjust our capacity when it comes to the slot criteria. And that is a specific situation in Hong Kong. And then typically, I mean with any given slots out there, with the use it or lose it type of principles, I mean to use it criteria is not 100%. It's typically something like 80%. So meaning that we could do some demand supply management with individual frequencies if the demand picture would deteriorate. At this stage we are not seeing that now.

--------------------------------------------------------------------------------

Jaakko Tyrväinen, SEB, Research Division - Analyst [9]

--------------------------------------------------------------------------------

Excellent. Then in terms of the -- of your capacity, in January, your European capacity was still quite heavily up. When should we expect this to flatten out, given your overall capacity growth of 4%?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [10]

--------------------------------------------------------------------------------

Let's stop, this Mika speaking. Originally, for the year, the plan was to grow during Q1 quite strongly, double-digit growth, and then the capacity growth is muted during the last 3 quarters of the year. And the same applies to Europe as well. So that's the bit -- or outlook.

--------------------------------------------------------------------------------

Jaakko Tyrväinen, SEB, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Okay. And then my last question relates to the numbers. And your depreciation and leasing costs were up quite a bit quarter-on-quarter. Whether some one-offs or should we expect this to be the new run rates?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [12]

--------------------------------------------------------------------------------

This is basically the new run rate.

Yes. We have an online question I guess from (inaudible). So what percentage of your capacity is in mainland China?

And that figure is approximately 9% would -- of the capacity would be on our mainland China routes.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

We take the next question from Pasi Väisänen from Nordea Bank.

--------------------------------------------------------------------------------

Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [14]

--------------------------------------------------------------------------------

This is Pasi from Nordea. Well, related to this very good momentum we have actually seen in Europe, so where is the positive mood actually coming from? Is it the local business traveling or the leisure traveling? Or is it related to transit passengers or probably coming from the ticket pricing? And if so from which category it's coming from?

And secondly, if there will be some kind of a bit kind of softer demand for Asia routes into summer, is there still kind of room in Europe to put more capacity to turn to your routes -- to your destinations? And also when looking at the kind of the effect you actually highlighted from the coronavirus for the first quarter, what's actually the limited impact in terms of euros you are referring at? So obviously, speaking about EUR 3 million, EUR 4 million, EUR 5 million or then to EUR 50 million approximately when looking at kind of the first period you guided?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [15]

--------------------------------------------------------------------------------

Mika here. Maybe I answer the first question. So for the European EBITDA, they are correct. But from really strongly across the board. So it's not coming from a single route or single source. So it was -- when one looks at the report, it really kind of untypical to see so many routes with increased RASK. So it's not only coming from the routes where we experienced less capacity by us or by our competitors. So it's really coming from almost every route in Europe. And what's notable there is that it's not coming from the Asian transfers. So it's coming from travel within Europe and within Europe, we mean both point-to-point between Helsinki and Europe and then via Helsinki, for instance, to Lapland, which was strong again. Another notable is that the domestic traffic category performed strongly. So it's really, really across the board, the strong performance what we see.

One more comment is that we introduced a new revenue management system, some 1.5 years ago, and the team there has really kind of excelled with the new system, and it really shows the strength. And we had the question on the capacity -- summer capacity. That's #2.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [16]

--------------------------------------------------------------------------------

Yes, so related to the capacity, as I mentioned earlier, when we consider the potential capacity reallocations, if for the case that the coronavirus situation will be prolonged, in making that assessment, our starting point is that as stated, we are committed to China strategy over the long run and where we want to maintain our slots better. So that we will be doing. If there will be tactical adjustments that will be done for the summer, then, of course, there are some long haul routes where we could add frequencies. And then there would be strong European routes where we could also consider this kind of a possibility. We have some routes like London, where we have quite solid capacity currently and then our number of passengers for London and Helsinki have been increasing significantly, something like 20% on an annual basis. And for example, for next summer, to London, we are -- we have already decided to include an 8 frequencies per day. So yes, if you ask that whether there would be possibilities on that space, yes, there could be some selected possibilities. What was #3?

--------------------------------------------------------------------------------

Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [17]

--------------------------------------------------------------------------------

I have to admit I forgot number 3.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [18]

--------------------------------------------------------------------------------

Yes, I think that the number 3 was that how much is relatively limited. And relatively limited is relatively limited. That is the -- that is I guess the bottom line for the (inaudible).

--------------------------------------------------------------------------------

Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [19]

--------------------------------------------------------------------------------

Yes. I guess. So that means a couple of million of euros then in that sense?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [20]

--------------------------------------------------------------------------------

We don't disclose that.

--------------------------------------------------------------------------------

Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [21]

--------------------------------------------------------------------------------

If I may actually continue, I have 2 kind of details still. You were referring up to 11 million kind of booking related to incentive program for pilot. So was it a year ago in the fourth quarter also again, in the fourth quarter on this?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [22]

--------------------------------------------------------------------------------

Yes, Q4.

--------------------------------------------------------------------------------

Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [23]

--------------------------------------------------------------------------------

Q4. Yes, yes. And then we're looking at the kind of the kind of RASK development. So would it be still kind of a realistic approach for this year that your revenue is actually growing by some 6%, meanwhile your capacities are (technical difficulty) actually, and I'm not seeing kind of any kind of cancellations or weakness in the bookings for the remaining part of the year?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [24]

--------------------------------------------------------------------------------

And this is not -- this is the thing that we are not guiding. I mean visibility is less than usual right now given the situation related to coronavirus. So we want to be prudent in this, and we want to resort to what we know as of today of the situation, and that is what we are telling you today. And then I'm sure that our situational picture will be updated during recent week when next days and weeks when we go forward, and then we will be updating our guidance in connection to Q1 report.

And as stated when we look at the long term picture, we think that situation with coronavirus eventually will go away. It is of temporary nature. And the signaling that we are doing with the dividend with the 40% payout ratio is that we believe in the long-term -- medium and long-term profitability possibilities of Finnair.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

So we'll take the next question from Achal Kumar from HSBC.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [26]

--------------------------------------------------------------------------------

First of all, congratulations for the strong results. I just wanted to understand a few things actually. So one, I mean so what I'm not able to understand, of course, the demand to HK has softened quite a lot. I mean of course, for the protest and now, of course, because of the coronavirus looks like quite locked down. But then still, you are sort of continuing with the double frequency and you said that you can utilize 80% of the slots and still maintain it. So if you could please help us understand why you're still utilizing full? And then how that has impacted the load? And then in the similar -- I mean in that same context, on the China side. So when you say you have canceled 200 flights. So in terms of percentage of your capacity, what is that percentage out of the total capacity you have -- you have canceled? And how have you been able to utilize that capacity or that still remains on the ground? That's my first question, please?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So if I start on the last one, I mean the impact of the approximately 200 flight cancellations that we have been now doing is amounting to approximately 1%.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [28]

--------------------------------------------------------------------------------

We haven't made the decision but assume that we would be canceling March also.

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [29]

--------------------------------------------------------------------------------

Yes, correct. So the impact of the 200 flights that we have now canceled and assuming that the same would continue for whole of Mainland China until end of March, capacity impact of that 1 would be roughly 1% on annual basis.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [30]

--------------------------------------------------------------------------------

And then have you sort of -- have you been able to utilize that capacity somewhere else? Or does that still remain on the ground?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [31]

--------------------------------------------------------------------------------

Yes. I mean this is low season -- low season right now. So that capacity is on the ground. But of course, I mean we are doing things. I mean we see some benefits on the on-time performance side, and there are some things related to maintenance that we could now do.

--------------------------------------------------------------------------------

Pasi Väisänen, Nordea Markets, Research Division - Senior Analyst of Utilities and Energy [32]

--------------------------------------------------------------------------------

Okay. And then on my HK, Hong Kong question, please. If you could help us understand on that?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [33]

--------------------------------------------------------------------------------

And the question related to Hong Kong was how are we seeing that. So I'd say, in Hong Kong, we have the double daily and there the Hong Kong Airport and the regulators, they have been lifting the slot criteria. So there, we can adjust our capacity without fear of losing the slots. The 80% that I mentioned was related to slots in Asia outside of Hong Kong, outside of Mainland China, as a general rule. Related to Hong Kong, we see the load factors basically continuing to be similar than in Q4, where we were slowed down by the Hong Kong unrest. We are observing this very, very closely. And then yes, I mean if -- we have now, I guess, we have announced that there will be 6 individual frequencies where we are doing the cancellations meaning that if another daily flight, either of those is having a low load factor, we are rerouting customers to the other flight.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [34]

--------------------------------------------------------------------------------

Okay. One small question. I mean so your intra-European traffic is doing fine. But on the total intra-European traffic, how much is the traffic which comes from Asia. So what is the sort amount of traffic out of total European traffic, which actually comes travel from all the way from Asia, connects on your Helsinki hub and then travels onwards to Europe in traffic? So I just want to understand that portion of the traffic might have softened as well. So what is that? How that works?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [35]

--------------------------------------------------------------------------------

Passenger wise, during Q4. On the number of passengers on European traffic category from Asia is less than 1/4, so less than 25%, no more.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [36]

--------------------------------------------------------------------------------

And that's all of Asia.

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [37]

--------------------------------------------------------------------------------

Yes, that's all of Asia.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [38]

--------------------------------------------------------------------------------

Including Japan, South Korea, Asia Pacific, India, all of those.

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [39]

--------------------------------------------------------------------------------

Yes, all of those.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [40]

--------------------------------------------------------------------------------

And then -- and do you see the softness in that sort of -- in that kind of demand also?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [41]

--------------------------------------------------------------------------------

Well, if there were, and as Topi said it, so the current view is that the only softening we see is from Mainland China, where we don't fly at the moment. And elsewhere in Asia, the status is normal with the exception of Hong Kong, where the situation was a bit soft already during Q4.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [42]

--------------------------------------------------------------------------------

And the momentum in Europe is continuing.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [43]

--------------------------------------------------------------------------------

All right. Then I wanted to understand about the packaged holidays, the group bookings. So you mentioned that while the demand was strong, the supply was down. So I mean who is cutting the capacity? So where the supply is going? I mean who is taking the supply out? And then secondly, in the same segment, I mean the packaged holiday world, how do you see the demand-supply equation going into 2020? Because I understand that you have quite a lot of group bookings as well. So how do you see that segment going ahead? So first, like who is cutting the capacity historically, I mean how do you -- where do you see the capacity going out? And how do you see the equation in 2020?

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [44]

--------------------------------------------------------------------------------

And just to understand your question precisely. So now you are referring to the sort of packaged travel. So basically, we are talking about some tours only in our context.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [45]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [46]

--------------------------------------------------------------------------------

Yes. So I mean there are, of course, the competitive landscape has been changing recently. I mean Thomas Cook. And in the Nordics, in finding another home, a new home. And there has been sort of some significant changes on the market in that space. I think that on the overall, when we look at the packaged double segment. We see that there is -- I mean the competition remains to be tough. And then we expect that to continue during this year and all of this year. Having said that, we do acknowledge that especially during the last couple of years, that particular segment has been sort of more than usually impacted by the weather. First, a very, very good summer weather in Finland in 2018 that decreased the demand quite a bit. And then during last summer, very sort of divided summer weather when that generated a bit more bookings. So that is something that we will need to keep in mind when we consider the performance during this year.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [47]

--------------------------------------------------------------------------------

Perfect. I'm so sorry, I have 2 more questions, actually if you might -- if you can help me to understand. So 1 is about the RASK performance. Of course, as you rightly said, that on North America, I mean you increased capacity so much. And then yet your RASK was up 4.3%, which is quite unusual, which doesn't happen, of course. And so that is quite good. But on the other side, in Europe also and domestic also so RASK was up 10% and 8%. So just want to understand, so what is changing? I mean has the customer profile being changed? Or -- and you just pointed out that you have a revenue management system. So do you see late bookings happening more, which is -- or more corporate traveler? So what has changed? I mean why the RASK performance was so strong in Europe, domestic in North America? If you could please help me understand on that?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

May I answer this question now? So in North America, the RASK was especially good on a Chicago route where we added capacity. And where we, in the month of November, we had a daily service. And that attracts our customers. So there was this drastic phenomena that when you improve the product, it pays off. So the daily product really kind of was been (inaudible) by our partner. In domestic, there was less split capacity in the marketplace and Norwegian pulled out. And at the same time, as I said, our revenue management really controls the availability well. So they, for instance, for the Christmas period, so when we hold the inventory tightened and managed well the booking curve. So that's behind there.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [49]

--------------------------------------------------------------------------------

And in Europe?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [50]

--------------------------------------------------------------------------------

In Europe. So some capacity decreases there. And then the revenue management worked really well. Minor effect also was due to the fact that there was -- Finland was the president of the EU. So some added travel from various European countries to Helsinki but the kind of remaining factors are the good performance by the revenue management and the capacity outlook for this year, where Norwegian is still pulling away from.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [51]

--------------------------------------------------------------------------------

And some of the other -- I mean generally, capacity reducing on the markets.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [52]

--------------------------------------------------------------------------------

And when you say revenue management, are you referring to sort of late bookings, which are wherein you get the more fair? I mean higher fare or how does it work?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [53]

--------------------------------------------------------------------------------

Yes, that's the logic there, so if you know what you are doing and you are holding at the inventory tight, i.e., meaning that you rely on the later booking, which have higher willingness to pay. So -- but you need to know when to do that. So when you have a Christmas Holiday peak. So you need to know what's the price is for that particular time of the year or time of the month. So that's what the revenue management team is doing now very well in Europe.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [54]

--------------------------------------------------------------------------------

Fair enough. And my last question, please on the cost side. So you talked about the cost efficiency, good that you -- I mean you're having a strong focus on the costs. But now going ahead, as you have sort of capacity on the ground, you have uncertainty around the China, Hong Kong and the capacity growth slows down significantly to 4%. In the overall scenario how do you see the cost pressure? I mean you all talked about the depreciation, but then other cost, I mean with the slowing capacity growth, do you see that will have a pressure on the cost. So how do you see that, please?

--------------------------------------------------------------------------------

Mika Stirkkinen, Finnair Oyj - CFO & Member of Executive Board [55]

--------------------------------------------------------------------------------

It has some impact. But you need to remember that what Topi said earlier on, so the overall, the profitability is quite low during this season, especially on China -- China routes. But we haven't done an extremely thorough analysis on the volume impact in general. There's another factor, what is impacting positively our cost. So I don't know how closely you follow the Helsinki weather here, but we have had extremely mild weather here in Helsinki and our -- all the costs related to the weather, I mean operational costs have been really positive for us. So de-icing, (inaudible) and our on-time performance has been extremely good during the early part of the year. So that is offsetting the potential cost of that cost drag due to the grounding of aircraft.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [56]

--------------------------------------------------------------------------------

And that is, of course, now seasonal. But what you see, for example, in January, on-time performance. I mean January last year when there was a lot of snow and snowstorms and days like that, our on-time performance was 65% for the month of January. So this January, our on-time performance was 85%. So a huge improvement in that one. And then I mean generally, when it comes to costs, as part of our strategy work, we have been making a very thorough cost benchmark and I think that we understand where the opportunities lie vis-à-vis our benchmark of airlines. And as part of the strategy implementation, that will be having impact with the 18-month buildup period, as we have stated, related to our financial targets, we are working to address that cost too.

--------------------------------------------------------------------------------

Operator [57]

--------------------------------------------------------------------------------

There are no further questions at this time.

--------------------------------------------------------------------------------

Topi Manner, Finnair Oyj - President, CEO & Member of Executive Board [58]

--------------------------------------------------------------------------------

So then thank you very much for joining us on this call, and thank you for very relevant questions once again. And we hope to see you in our next earnings call in Q1 when we will be updating also our guidance. Thank you.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

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