Finnair - Normalizing capacity growth in ‘20E

Finnair delivered strong Q4 result. Q4 revenue was EUR 774.9m vs. our 740m (cons. 744m) while adj. EBIT amounted to EUR 31.2m vs. our 8.2m (cons. 9.0m). Finnair expects ‘20E capacity growth of ~4% but didn’t provide more detailed ‘20E guidance due to the coronavirus. We keep our rating “HOLD” with TP of EUR 6.3 (6.5).

Q4 better than expected

Finnair’s Q4 result beat the expectations in terms of both revenue and profitability. Revenue grew by 13.4% y/y and amounted to EUR 774.9m vs. our EUR 740m (cons. 744m). The difference is mainly due to Finnair’s better than anticipated revenue management (i.e. ticket fares). Revenue development was good especially in North America (38.5% y/y) and in Europe (17.3% y/y). Q4 costs were as expected with fuel cost of EUR 171m (Evli 171m) and other OPEX (incl. D&A) of EUR 588m (Evli 580m). Q4 adj. EBIT was EUR 31.2m vs. our EUR 8.2m (cons. EUR 9.0m). Proposed dividend for ’19 is EUR 0.20 vs. our EUR 0.11 (cons 0.10).

Expecting ASK growth of ~4% y/y

Finnair’s capacity (ASK) growth was strong in ’19 (11.3% y/y), driven by two new A350s, received last year and one A350, received in Dec’18. The added capacity was mainly put to Asian routes. Two more A350s are expected to be delivered during H1’20E. For 20E, Finnair guides capacity growth of ~4% y/y while our expectation is at 3.6% y/y. We expect the good performance to continue especially in Europe where many airlines have cut capacity but also in North America. We expect cargo to remain relatively soft in ’20E due to continuing uncertainties around global trade.

Weak visibility due to the coronavirus

Finnair did not provide a revenue estimate for 20E, as the total impacts of the coronavirus are still unknown. Finnair has suspended all the flights to mainland China, which might continue until the end of March. Finnair estimates that the Q1’20E financial impacts remain limited as the post Chinese New Year time is usually relatively quiet in terms of traveling. Due to the coronavirus, one delivery of A350 will be delayed from April to June. We have slightly decreased our Q1’20E revenue expectation (approx. -1%) but expect the impacts for the full year to remain limited.

“HOLD” with TP of EUR 6.3 (6.5)

We expect 20E revenue of EUR 3191m (3% y/y) and adj. EBIT of EUR 171m (5% y/y), resulting in adj. EBIT margin of 5.4%. However, as the visibility of the coronavirus is weak, there are uncertainties especially with our short-term estimates. On our estimates, Finnair trades at ‘20E-'21E EV/EBIT multiple 9.2x and 8.4x, which translates into ~10-20% premium compared to the peers. We keep our rating “HOLD” with TP of EUR 6.3 (6.5).

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