Finnair - High earnings to be sustained
Summer season to deliver another set of high earnings
Finnair’s Q4 ASK continued to grow 11% y/y, driven by the 22% increase in Asia and where the PLF still improved (although not as much as we expected). Meanwhile European traffic is already a lot closer to a stable level as RPK has grown ca. 5% y/y and the PLF declined a bit. Finnair’s FY ’23 PLF landed at 76.4%, 500-600bps below general sector levels. Finnair’s PLF is likely to stay below the sector average also this year (as it was 100bps lower also in FY ’19), however it should at least remain roughly stable and could even improve a bit as IATA expects the global PLF to gain another 60bps this year. Much again depends on the summer season as the winter months remain seasonally soft, while Q1 this year will also be burdened by the strikes in Finland. We estimate Finnair’s Q4 revenue to have grown 9% y/y and see EBIT at EUR 26m.
Relatively stable development expected from here on
Jet fuel prices declined sharply late last year but have since bounced back a bit. The levels are still some 10% lower than they were in October, and although it’s hard to say where the prices will settle the decrease should nevertheless support this year’s earnings enough to offset the losses seen in Q1. We hence believe Finnair’s FY ’24 EBIT to stay close to EUR 200m. In our view cost inflation will not be a very big issue, rather the major theme continues to be the optimal balance between capacity utilization rates and prices. Yields are unlikely to decline, however they shouldn’t have much potential for additional increases as demand and supply growth appear quite well balanced from now on.
Earnings-based valuation not too demanding
Finnair’s FY ’23 revenue grew roughly in line with peers, and there should be potential for at least further mid-single-digit growth this year. Additional growth positions many airlines for further earnings gains after the pandemic cost-cutting exercises, whereas we estimate only marginal improvement for Finnair. The 7.5x EV/EBIT multiple, on our FY ’24 estimates, is well in line with peers, while in our view a slight premium can be justified. Our EUR 0.04 (0.05) TP values Finnair at 8x EV/EBIT; our new rating is BUY (SELL).