Performance of the Divisions
At the same time as Finnair is preparing to apply the IFRS accounting principles in 2005, a system of four divisional reports will be introduced in external reporting from the beginning of 2004. The reporting segments will be: Scheduled Passenger Traffic, Leisure Traffic, Aviation Services and Travel Services. In 2003 the Cargo and Support Services business areas were also reported on separately in addition to the above.
Scheduled Passenger Traffic
This division is responsible for sales, service concepts, flight operations and the procurement and financing of aircraft. Scheduled Passenger Traffic leases to the Leisure Traffic division the crews it requires for its operations. The division also leases cargo capacity for the Group's cargo operations. In 2003 the division's units included Finnair's Scheduled Passenger Traffic and Aero Airlines, which were joined as of December 2003 by Nordic Airlink, which operates in the Scandinavian market.
In financial year 2003, the turnover of the division fell by 9.6 per cent to 1074.5 million euros. The operating loss for the division, excluding capital gains, was 41.7 million euros, compared to a operating profit of 31.7 million euros in the corresponding period last year.
A rise in the relative share of lower price-level, long-haul traffic as well as a more competitive market climate and decline in premium class volumes contributed to a 10.7 per cent fall in unit revenues for scheduled passenger traffic in 2003. The price reform implemented in September had an impact on final quarter unit revenues, which fell 22.6 per cent in scheduled passenger traffic. At the beginning of September, Finnair discontinued the payment of commission fees to travel agencies in Finland, which will reduce distribution costs considerably in future.
Demand for Finnair's scheduled passenger traffic services fell in the first half of the year by 8.7 per cent, but rose in the second half by 13.1 per cent. Finnair's scheduled passenger traffic demand grew by 2.4 per cent over the year as a whole while capacity grew by 6.9 per cent, leading to a fall in passenger load factor by 2.8 percentage points to 62.2 per cent. The Iraq war and the SARS epidemic in particular adversely affected demand at the beginning of the year.
Finnair's market share in traffic between Asia and Europe has grown as a result of increased capacity and new destinations. As competitors strongly increased their capacity, Finnair's market share in domestic and European traffic fell slightly.
The number of business class passengers on Finnair's international scheduled flights fell by 16.7 per cent in January-September. As of September 2003, Finnair no longer reports business class passenger numbers separately. Owing to the price reform and the shift to a one-class service on certain European routes, earlier figures are no longer suitable for comparison purposes.
The punctuality on departure of scheduled passenger traffic improved to 91.0 per cent, compared with 89.3 per cent the previous year.
At the end of the year, Aero Airlines expanded its operations by receiving its second aircraft and starting flights on behalf of Finnair on certain domestic routes suited for turbo propeller aircraft.
As its operations expanded, Finnair founded in December 2003 a new domestic company, Finnair Aircraft Finance Ltd, to which the fleet financing, management and leasing activity practised by Finnair Plc was transferred. The founding of the new company is part of a restructuring in line with the Group's strategy, which aims to improve the productivity of capital committed to flight operations and to make more efficient use of the aircraft fleet.
Leisure Traffic
This division consists of Finnair Leisure Flights' operations and the Aurinkomatkat-Suntours package tour company, which is the biggest in its field in Finland with a market share of more than 35 per cent. Finnair Leisure Flights continues to have a strong, 80 per cent share of leisure travel flights, even though additional players have entered the market.
In financial year 2003, the turnover of the division fell by 0.8 per cent to 327.3 million euros. Reduced leisure flight capacity as well as increased competition in the leisure flight market contributed to the decline in turnover. Unit revenues for leisure traffic declined by 1.3 per cent. The division's operating profit improved to 16.6 million euros (6.6 million).
Demand for leisure traffic decreased by 1.1 per cent, while capacity was reduced by 1.5 per cent. Passenger load factor improved by 0.4 percentage points to 88.7 per cent.
Cargo
Finnair Cargo is responsible for the transport of air freight. In its operations it utilizes capacity on Finnair's scheduled passenger and leisure flights as well as Helsinki's gateway status. If necessary, capacity is also leased from freight operators outside the Group.
In financial year 2003, Cargo Traffic's unit revenues fell by 7.3 per cent and turnover by 0.6 per cent to 121.0 million euros. The operating loss was 1.6 million euros (operating profit 1.2 million).
The number of cargo kilos carried fell by 0.4 per cent. Growth continued to be strong in Asian traffic, where Finnair's MD-11 long-haul aircraft were utilized. Cargo capacity leased from outside the Group declined further, but leased capacity was gradually increased during the autumn.
Aviation Services
This division comprises aircraft maintenance services, ground handling and the Group's catering operations.
The turnover of the Aviation Services division fell by 9.2 per cent to 387.5 million euros. The decline in the division's turnover was a result of customers' lower level of activity and a fall in the price level of services as well as concept changes implemented both in catering operations and in ground handling. The cost-cutting programme and implemented adjustment measures led to an improvement in operating profit, excluding capital gains, to 6.8 million euros (3.8 million euros).
The operations of the Swedish subsidiary Finnhandling AB, founded earlier in the summer by the Group's business unit Finnair Ground Handling, have made a good start. In cooperation with partners, the company provides ground handling services flexibly and cost-effectively at Stockholm's Arlanda Airport.
Finnair Catering Oy and the leading Finnish alcoholic beverage company Altia Oyj founded a joint-venture company, SkyCellar Oy, to which Finnair Catering transferred its wine wholesaling business in May. Finnair Catering Oy owns 19.9 per cent of the company. Through the arrangement, Finnair improved the cost-effectiveness of its wine delivery logistics, while maintaining high quality and reliability.
Travel Services
The division consists of the Group's domestic and foreign travel agency operations as well as the operations of the reservations systems supplier Amadeus Finland Oy.
The turnover of the Travel Services division fell by 10.9 per cent to 87.4 million euros. The decline in turnover was due to the general weakness in demand, the lower price level of flight tickets and to the fact that Finnair followed the example of many other airlines and discontinued the payment of commission fees. As a result of adaptation measures, the division's operating result remained positive at 3.5 million euros (3.5 million).
During the latter part of the year, after commission fees were discontinued, the charging of service and transaction fees from customers became established in line with general international practice. At the same time the travel agencies have developed new additional services and have invested in centralized service centre operations.
Support Services
Those functions which support Group business operations, such as various financial and personnel management services, come under the Support Services division. In addition, the Group's property holdings and the management and maintenance of properties relating to the Group's operational activities, as well as office services, are functions of this division.
The turnover of the Support Services division fell by 25.7 per cent to 53.9 million euros. Turnover is made up almost entirely of sales to other units of the Group. The operating loss, excluding capital gains, was 24.6 million euros (22.3 million). |