Finnair - Summer is coming

Finnair reports Q1 results on Apr 23. Q1 is always seasonally soft and so the summer months are to deliver most of the EBIT, this time probably even more so than last year.

Asian volumes can still recover slightly

Finnair’s Q4 results didn’t quite meet estimates as unit yields were somewhat softer than expected, but profitability didn’t miss estimates that much considering the normal seasonal variability patterns in EBIT. Q1 RPK, however, only remained flat y/y while PLF declined by some 300bps. Finnair’s Q1’23 EBIT was slightly positive, but we now estimate the Q1’24 figure to have been negative at EUR -13m. Q1 is seasonally the weakest and this time there were also political strikes. Focus thus again rests on the summer season. Finnair’s volume growth has in recent months relied on the recovery in Asian traffic, although even there Q1 RPK only grew by 4% y/y. Finnair will not guide FY ’24 EBIT before July, yet we continue to believe the summer season has enough going for it so that EBIT should not decline y/y (while volumes and revenue grow at mid-to-high single digits).

The European summer season is full of stadium-size events

Finnair said it expects growth to stem mostly from Asia and Europe going forward. In our view Finnair is positioned for double-digit volume growth over the summer months as Europe has a very busy event summer in terms of stadium-filling sports and live music productions. Meanwhile both unit yields and jet fuel prices seem now to be flatlining, which we believe should help some further marginal bottom line improvement. Our estimates beyond Q1 stay largely intact, and so we expect Finnair’s FY ’24 EBIT to reach EUR 190m.

Valuation implies quite moderate expectations

We estimate Finnair’s revenue to grow 6% this year, in line with peers. Most airlines, like Finnair, saw significant EBIT improvement already last year and so there may not be that much potential left for further gains; a typical airline is however still expected to see EBIT margin improve by ca. 100bps, whereas we estimate a minor decline for Finnair. Finnair is valued around 8x EV/EBIT on our FY ’24 estimates, not much above the peer median. We continue to view the valuation modest as our earnings estimates are relatively conservative. Our TP is EUR 3.5 as we retain our BUY rating.

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