Finnair - Profitability largely recovered
Very high profitability even ahead of the summer season
Finnair’s EUR 749m Q2 revenue landed near the EUR 724m/760m Evli/cons. estimates, while passenger revenue was EUR 40m above our estimate as unit yields were higher than we expected (RASK was 27% above the Q2’19 level). Finnair had its best Q2 in history in terms of EBIT; there were no big cost surprises relative to our estimates and hence the higher-than-estimated top line translated well to comparable EBIT, which was EUR 66m vs the EUR 44m/51m Evli/cons. estimates. Capacity constraints meant maintenance costs were low, but the issue had no major impact on numbers. The capacity issues also led to a further lag in ASK compared to pre-pandemic levels, an industry-wide challenge which however has helped profitability in the short-term.
Out of the woods, yet strategy execution work continues
On the one hand airlines are in a spot from where it’s unlikely to get much better, considering the high yields and current supply bottlenecks as well as improved cost competitiveness in the wake of the pandemic, while on the other hand certain demand trends may prove to be secular. Experience consumption has so far showed resiliency against inflation, and hybrid work has expanded the market for leisure travel. Competitive landscape appears stable especially in Europe, while the field is level in markets like Japan and Korea, but Atlantic competition is more intense. Finnair still does some further network optimization, while long-term strategy requires new fuel-efficient planes.
6% EBIT margin already has a rather solid basis
The low end of the EUR 150-210m range seems very cautious as we believe Finnair will achieve more than EUR 150m in combined Q2 & Q3 EBIT alone. Finnair is likely to achieve an EBIT of 6% already this year, which makes the new long-term target of 6% by the end of ‘25 look muted. We estimated above 6% levels for the coming years already before the update and thus make only marginal revisions. Finnair trades ca. 8.5x EV/EBIT on our FY ’23 estimates, a double-digit premium to peers which we find acceptable as above 6% EBIT looks realistic already quite soon. Our new TP is EUR 0.54 (0.53) as we retain our HOLD rating.