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UPDATE 2-Finnair, struggling to implement cost cuts, warns on profit
August 15, 2014 / 7:50 AM / 3 years ago

UPDATE 2-Finnair, struggling to implement cost cuts, warns on profit

* Q2 adjusted EBIT -20 mln euros vs 3 mln in Reuters poll

* Cuts full-year view, sees significant 2014 loss

* Expects deal with pilots by September

* Declines to comment on Russia risk

* Shares fall 1.2 pct (Adds CEO, analyst comments, Russia risk)

HELSINKI, Aug 15 (Reuters) - Loss-making Finnair cut its full-year profit forecast on Friday after posting a weaker-than-expected quarterly result due to delayed cost-cuts and tough market conditions.

Stiff competition from discount carriers, high fuel prices and unfavourable exchange rates put pressure on the state-controlled airline while it struggled to implement planned cost cuts in the face of strong labour union resistance.

“Due to delays in the personnel cost reduction negotiations and the unfavourable market conditions driving the decline in unit revenue, Finnair estimates that its 2014 operation result will show a significant loss,” it said in a statement.

The company had already cut its sales guidance in June, forecasting a significant fall in turnover from 2013, but declined at that point to update its profit outlook until it saw how negotiations with staff over cost cuts proceeded.

Finnair shares were down 1.2 percent at 2.49 euros by 1307 GMT.

“This was quite a gloomy guidance. It indicates the company has rather low expectations for the second half of the year too,” said Pohjola analyst Jari Raisanen.

Finnair’s second-quarter core operating result fell to a loss of 20 million euros ($27 million) from a profit of 7.5 million euros a year ago, also missing analysts’ average forecast of a shrinking profit.

RUSSIAN CLOUDS

Finnair has in recent years expanded its flights to Asia, but that strategy would backfire if Russia were to ban European flights through its airspace.

Prime Minister Dmitry Medvedev last week said Moscow was considering such a move in reaction to EU’s latest sanctions owing to Ukraine crisis, but some analysts consider such a step unlikely.

“This would be a major negative for Finnair, which gets more than 40 percent of its revenues from Asia ... if that ban were to continue longer, the company would have to make significant strategic changes,” Pohjola analyst Jari Raisanen said.

“I doubt that would really happen. It would have so much negative impacts to Russia itself.”

Finnair declined to comment on the Russia question.

The airline said it had in June reached 176 million euros of annual cost savings since 2010 and that it was committed to hit its target of 200 million euros by the end of the year.

After failed talks with cabin crew, it recently decided to outsource some 500 staff. Now it said it was making progress in its plans to cut pilots’ wages, and expected to strike a deal soon with their union.

“Negotiations with pilots are proceeding, and we expect to have a deal in early September,” CEO Pekka Vauramo told Reuters.

Finnair has ordered 11 A350 aircraft from Airbus as it looks to replace planes in the coming years. Its weak profitability had not yet put that plan at risk, Raisanen said.

“It would be good to show some results to help with the financing ... But it will take some more years anyway, and they will probably use sale and leaseback type of arrangements,” he said, adding that Finnair would be good to cut costs by outsourcing more of its short flights. (1 US dollar = 0.7485 euro) (Reporting By Jussi Rosendahl and Sakari Suoninen; Editing by Sophie Walker and David Evans)

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