Finnair - Capacity growth as expected

Finnair’s capacity growth in Q1 was in line with the guidance for 2019E (10.4% vs. guidance 10%) and with our Q1 expectation of 11 %. Passenger growth on the other hand was weaker than expected. We have implemented the IFRS 16 changes to our estimates and kept Q1 expectations mainly intact. We keep our rating “HOLD” and target price of EUR 8.0 ahead the Q1.

Soft start in Q1 traffic information

Finnair’s traffic continued soft in Q1. Overall capacity (ASK) grew by 10.4 %, which is somewhat in line with our 11 % expectation. Sold capacity (RPK) growth was only 4.2 % which stayed clearly below our estimation of 7 %. As a result of that, passenger load factor (PLF) continued decline by 4.6 % percentage points in Q1 to 78,3 %. Largest drop was in Asia (-6.2pp) but also in Europe (-3.2pp) and domestic (-3.2pp).

Fuel prices rising from its lowest point

Jet fuel prices reached its lowest point during the turn of the year but has increased since then. Average price moved on q/q basis by -7% in EUR and by -8% in USD compared to the average prices of 4Q18. Also, on a y/y basis the prices moved by -3% in USD when compared to the average price of 1Q18. However, the average price in EUR was 5% higher.

IFRS 16 changes implemented to our estimates

The effects of IFRS 16 to Finnair’s financials are noteworthy. Lia-bilities in 2018 increased by 1,1b euros and assets by 992 million euros. 2018 EBIT improved from EUR 169m (margin 6,0 %) to EUR 218m (margin 7.7%). We have kept Q1 estimates largely un-changed apart from the changes caused by IFRS16 and the changes in the accounting principle of aircraft frame components. We expect Finnair’s Q1 revenue to be EUR 679m (6 % growth) while foreseeing adj. EBIT of -6m (margin -0.9 %). We keep our rating “HOLD” and TP (EUR 8.0).

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