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Finnair Group

Finnair Group. Interim Report 1 January – 31 March 2007. An encouraging start to the year. Scheduled Passenger Traffic demand strong, particularly from Asia Finnair’s market share growing in international traffic from Finland Unit costs fell Passenger traffic profitability improved

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Finnair Group

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  1. Finnair Group Interim Report 1 January – 31 March 2007

  2. An encouraging start to the year • Scheduled Passenger Traffic demand strong, particularly from Asia • Finnair’s market share growing in international traffic from Finland • Unit costs fell • Passenger traffic profitability improved • Finnair Technical Services and FlyNordic also clearly better than previous year • Fuel price stable, but on a high level • FlyNordic joins Norwegian Air Shuttle, creating a strong Scandinavian airline

  3. Finnair sold FlyNordic to Norwegian • Memorandum of Understanding in April, final deal during Q2/07 • Payment in shares, Finnair’s holding in Norwegian Air Shuttle rises to more than five per cent • An option allows Finnair to increase its ownership to around ten per cent by end of 2008 • FlyNordic’s charter traffic revenue divided 50/50 until October 2008 • Cooperation agreement between Finnair and Norwegian in Asian feeder traffic

  4. Efficiency programme takes shape • Target EUR 80 million, of which half is personnel expenses • Efficiency areas specified in full • Savings weighted towards end of year • Profit impact for 2007 around EUR 40 million • Full financial impact will begin in 2008 • Personnel reductions to date ~300; total in 2007, ~600 • More than 200 people recruited into Flight Operations • Total number of employees stays nearly the same

  5. Key efficiency areas • Technical Services competitiveness programme • Flight personnel agreements • Savings from support functions • More efficient crew utilisation through network reform • Management of exceptional situation processes • Feeder traffic reform • Mergers in travel agency network (SMT+Area) • Cutting distribution costs

  6. Fuel costs a fifth of turnover • 2003: 10.2% of turnover • 2004: 12.5% of turnover • 2005: 15.6% of turnover • 2006: 19.4% of turnover • 2007: ~20% of turnover at current price level and planned traffic growth Finnair scheduled traffic has hedged 70% of its fuel purchases for the next six months, thereafter for the following 30 months with a decreasing level. Finnair leisure flights hedged 60% of summer traffic programme’s consumption.

  7. Higher jet fuel prices anticipated

  8. Passenger traffic and Technical services profitability improved

  9. Unit costs decreased Change YoY % Yield (EUR/RTK) Unit costs (EUR/ATK) 2006 2005 2007 2003 2004 2002

  10. Fuel costs even out * excluding fair value changes of derivatives ATK = Available Tonne Kilometre

  11. Business growing, operations systematically rationalised Personnel Personnel on average

  12. Productivity improved

  13. Liquid funds used for investments Cash flow January-March

  14. Strong balance sheet Equity ratio and adjusted gearing % Equity ratio Adjusted Gearing

  15. Expansion to Asia continues • Demand grew during Jan-Mar07 by 35.4%, passenger numbers 29.9%, cargo 19.7% • Passenger load factor 36.8%, business class demand grew by 38.8% • Asian revenues increased by over 40% • This year sees Indian traffic quadrupled, new destination Mumbai • This summer 59 flights a week to Asia • Non-stop flights to 10 destinations, six out of which daily • Growth in different markets in Asia diversifies risk • Capacity will grow by over 30% this year

  16. Long-haul network – 2001 number of weekly frequencies Tokyo 2 7 New York Beijing 3 Helsinki Bangkok 4 Singapore 4

  17. Long-haul network – summer 2007 Tokyo 4 Nagoya 4 7 New York Osaka 7 Beijing 7 Shanghai 7 Guangzhou 4 Hong Kong 7 Helsinki Bangkok 7 Delhi 7 Mumbai 5

  18. Share of Asian traffic growing Scheduled traffic passenger and cargo revenues Q1/2007 Domestic Europe Asia America

  19. Most modern European fleet • Average age of European fleet below four years • 29 Airbus A320 family aircraft • New Embraer 170/190 aircraft increase flexibility and load factors, decrease costs and are eco-efficient • A total of ten smaller and two larger Embraer in fleet, eight larger aircraft coming • A fleet of eight wide-bodied aircraft • Two new Airbus A340 aircraft annually 2007-2008

  20. oneworld energized • oneworld a high quality and only profitable alliance. Three new members as of April 1st • Japan Airlines, largest in Asia and the Pacific region • Royal Jordanian, complementing our network in growing Middle-East market • Hungary´s Malev will serve as partner in Central Europe

  21. Appraisal of future development • High degree of hedging will stabilise fuel costs in latter part of year • Renewal of wide-bodied fleet will begin • New route openings will impose temporary pressure on Asian traffic load factors • Two MD-11 and four ATRs will be sold • Unit costs will decline further • Restructuring will proceed, results already visible • New collective employment agreements in autumn, negotiations already under way • Potential to exceed 2005 operational result

  22. Appendices

  23. Profitability is back Change in EBIT per quarter (Excluding capital gains, fair value changes of derivatives and reorganization expenses) MEUR 2002 2003 2004 2005 2006 2007

  24. Average yield and costs EUR c/RTK & EUR c/ATK Yield (EUR/RTK) Unit costs (EUR/ATK) 2007 2006 2003 2005 2004 2002

  25. Aviation Services on black Excluding capital gains, fair value changes of Derivatives and reorganization expenses

  26. Investments and cash flowfrom operations MEUR Operational net cash flow Investments

  27. Aircraft operating lease liabilities Flexibility, costs, risk management MEUR On 31 March all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments by seven, the adjusted gearing on 31 March 2007 would have been 116,5%

  28. ROE and ROCE Rolling 12 months % ROE ROCE

  29. Emissions trading for air traffic • EU air traffic accounts for only 0.5% of all CO2 emissions in the world • Finnair in favour of emissions trading principles • EU proposal sets airlines at somewhat unequal footings depending on route network structure • Should be global • Competitively neutral • Investments already made in new technology should be taken into account • Open emissions trading

  30. Customers can already make environmental choices when flying • Choose an airline with a modern fleet • Fly in the right direction all the way, without unnecessary stopovers. Shorter flight routes result in less emissions • Avoid large, congested airports By making these choices, fuel consumption and emissions can drop by at best 30%!

  31. Finnair Financial Targets ”Sustainable value creation” EBIT margin at least 6% => 110-120 mill. € in the coming few years Operating profit (EBIT) EBITDAR margin at least 17% => over 300 mill. € in the coming few years EBITDAR To create positive value over pretax WACC of 8% Economic profit Gearing adjusted for aircraft lease liabilities not to exceed 140 % Adjusted Gearing Minimum one third of the EPS Pay out ratio

  32. Finnair’s Financial TargetsDescription of targets Operating profit (EBIT) Turnover + other operating revenues – operating costs Result before depreciation, aircraft lease payments and capital gains EBITDAR Economic profit Operating profit EBIT – Weighted Average Cost of Capital Interest bearing debt + 7*Aircraft lease payments – liquid funds) / (Equity + minority interests) Adjusted Gearing Pay out ratio Dividend per share / Earnings per share

  33. www.finnair.com Finnair Group Investor Relations email: investor.relations@finnair.com tel: +358-9-818 4951 fax: +358-9-818 4092

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