Finnair - Earnings trend up over the summer

Name: Evli
Price range: $

Finnair’s Q1 revenue was a bit soft relative to estimates, however earnings were as estimated thanks to cost discipline. We believe FY ’24 results should stay quite high due to increased capacity and PLFs, however yields may no longer have room to gain despite a busy summer season.

Q1 performance was decent considering the conditions

Finnair’s Q1 revenue declined 2% y/y to EUR 682m, slightly below the EUR 710m/698m Evli/cons. estimates. Passenger revenue came in some EUR 35m below our estimate due to lower-than-estimated unit yields on Asian and European routes, whereas Finnish winter conditions as well as two political strikes (in addition to strikes in other countries such as Germany) had an impact on bottom line. Considering these headwinds the EUR -11.6m adj. EBIT, compared to the EUR -12.9m/-8.3m Evli/cons. estimates, reflected a very decent operative performance while operating costs were kept under control.

We still see marginal EBIT gains over the rest of the year

Finnair adjusted its capacity guidance down a bit, but in our view the change wasn’t very big. Capacity increases by more efficient use of assets and so costs should remain in check. The focus is on commercial excellence measures and finding the optimal balance between PLFs and unit yields; Q1 yields were a bit softer than we expected, but Finnair achieved lower costs than we estimated. We estimate PLFs have room to improve by further 100-200bps over the summer as comparison figures weren’t yet that high, however unit yields face more challenging comparisons this summer as ticket prices increased by double-digit rates last year; we estimate yields to be down by a few percentage points y/y over the summer.

Earnings multiples are not too high relative to peers

We estimate Finnair’s FY ’24 revenue to grow 4% this year, a conservative estimate relative to the ca. 9% growth seen for the peer group, while we see adj. EBIT basically flat at EUR 187m. Finnair is valued slightly above 8x EV/EBIT on our FY ’24 estimates; in our view EBIT could have touched EUR 200m this year without the extraordinary conditions seen in Q1 and thus there should be room for an additional EUR 10-20m annual improvement assuming the market stays around its current rather stable balance. We retain our EUR 3.5 TP and BUY rating.

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