Finnair - Coronavirus hampers Q1 result

Finnair will report its Q1 result on next week’s Wednesday, 29th of April. The company’s Q1’20 traffic data was below our expectations thus we have cut our estimates. We expect Q1’20E revenue of EUR 585m and adj. EBIT of EUR -73m. We keep our rating “HOLD” with TP of EUR 4.0 (3.5) ahead of Q1.

Q1 traffic hampered by the coronavirus

Finnair’s traffic figures were substantially below our expectations in Q1, due to March traffic figures, which slumped more than we expected. In Jan-Mar, capacity (ASK) decreased by 9% vs. our +2% expectation, while sold capacity (RPK) declined as much as by 16% vs. our -1% expectation. Thus, passenger load factor (PLF) declined by 5.7 percentage points to 72.6%. Traffic figures and cargo were heavily impacted by the coronavirus in all Finnair’s market areas. Total passenger number declined by 16% y/y. We expect Q1’20E revenue of EUR 585m (Q1’19: EUR 668m) and adj. EBIT of EUR -73m (Q1’19: EUR -16m).

Drop in fuel prices

Oil prices have dropped significantly since the beginning of the year amid the coronavirus pandemic and the price war between Saudi Arabia and Russia. The average fuel price in both USD and EUR dropped by 20% on a q/q basis compared to Q4’19. The average price in Q1’20 was 19% lower y/y in USD and 17% lower y/y in EUR.

“HOLD” with TP of EUR 4.0 (3.5)

We have cut our 20E estimates as the ongoing movement restrictions are likely to continue for several weeks or even months and the air travel is not expected to return to normal, not at least during this summer. Finnair has cut some 90% of its capacity due to COVID-19. We now expect 20E revenue of EUR 2213m (-29% y/y) and adj. EBIT of EUR -144m (-190% y/y). We note that there are significant uncertainties with our short-term estimates due to the situation. We have also decreased our 21E-22E revenue estimates by ~6% and adj. EBIT estimates by ~9%. Despite of the weak short-term outlook we still see Finnair’s mid-term outlook rather positive. Prior the crisis Finnair had a strong cash position and a healthy balance sheet. The company is also implementing a substantial funding plan, including sale and leasebacks of unencumbered aircraft, a revolving credit facility of EUR 175m, which has already been raised and a statutory pension premium loan totaling to EUR 600m. It has been proposed that the State of Finland would guarantee the loan. Therefore, we see that Finnair is well placed to continue its operations relatively normally after the crisis. We keep our rating “HOLD” with TP of EUR 4.0 (3.5) ahead of Q1.

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