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Finnair - Heavy turbulence continues

There were no surprises with Finnair’s Q1 result. The company expects Q2 comparable operating loss to be similar compared to the previous quarters and gradual recovery to start from late summer. Finnair also increased its cost savings target to EUR 170m. We keep “HOLD” with TP of EUR 0.75.

Restrictions continued to hamper Q1 figures

Finnair’s Q1 result was relatively similar compared to the previous quarters. Tight travel restrictions remained, and Finnair operated with limited network and frequencies in January-March (approx. 75 daily passenger flights). Revenue decreased by ~80% y/y to EUR 114m vs. EUR 96m/103m Evli/consensus. Once again, revenue was supported by strong cargo demand (cargo revenue represented ~54% of total revenue). ASK was down by ~88% y/y and PLF was 25.5% (-47.1pp). Adj. EBIT amounted EUR -143m and was slightly better than expectations (EUR -155m/-159m Evli/cons.).

Increased cost savings target

Previously, Finnair was targeting permanent costs savings of EUR 140m by 2022 (compared to 2019 levels) but as the savings program is proceeding well the company increased the target to approx. EUR 170m. This is good news as it is extremely important to be well positioned in the post COVID-19 world. Despite the blurry outlook regarding the recovery of air travel, there are positive signs in the market as the vaccination coverage is gradually increasing. Finnair starts to accept vaccination certificates from mid-May onwards and will be adding destinations and frequencies towards the summer. In summer, the company’s plan is to operate over 60 destinations. However, we note that it is important that European countries lift travel restrictions at a same pace but also that traveling from non-EU countries becomes easier.

“HOLD” with TP of EUR 0.75

Due to the week visibility, Finnair did not provide a full year guidance but expects Q2’21E comparable operating loss to be similar compared to the previous four quarters. The company expects gradual recovery to start in late summer. As the company has additional funding available if needed (e.g. hybrid loan from the State of Finland) we expect the company is rather well positioned once the market reopens. We expect 21E revenue of EUR ~1287m and adj. EBIT of EUR -372m. Profitability should quickly improve once the recovery starts due to the cost savings. We keep our rating “HOLD” with TP of EUR 0.75.

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