Finnair - Working through the challenges

We believe EBIT could turn positive already in Q3’22

Q2 RPK topped our estimate by 12% thanks to high passenger loads, especially in June, as Europe was in line while Asian and North Atlantic flows were above our estimates. The overall Q2 RPK figure was roughly half of the level seen in 2019; Finnair’s European Q2 flows were already 70% of the corresponding 2019 figures, which reflects the fact that short-haul routes have rebounded faster than long-haul ones. Many airports have been strained under the traffic and Finnair cannot have dodged the challenge although the impact may have been less pronounced in its case. Finnair expected Q2 EBIT to land around the same level seen in Q4’21 (EUR -65m); we previously estimated the figure at EUR -80m but revise our estimate to EUR -41m due to the busier-than-expected early summer season. Finnair appears poised to reach profitability in the coming quarters, despite the Russian airspace closure, as Western routes continue to rebound and high travel demand helps secure good prices for wet leases.

Expect to hear more on shoring up long-term potential

The Russian closure is likely to limit Finnair’s long-term potential to some extent, however Finnair is yet to announce any sales of aircraft in response. It would therefore be interesting to get some further color on where Finnair sees itself standing now with respect to the already announced leases and potential additional capacity reduction measures. Finnair was quick to identify further EUR 60m in permanent cost savings, and there were hints the target could still be upped a bit. The company has also recently expanded its Stockholm Arlanda presence and may be able to pursue more growth from there.

Valuation reflects the improving environment

Jet fuel prices peaked in June and are already down by some 20% from those highs but the current levels remain elevated by historical standards. We have revised our EBIT estimates slightly upwards, but airline valuations have developed soft over the summer weeks and are now trading about 12x FY ’23 EV/EBIT. We don’t thus see upside on the 13-18x EV/EBIT multiples (on our FY ’23-24 estimates). We retain our EUR 0.43 TP and HOLD rating.