Finnair - Q3 traffic close to expectations

Finnair will report its Q3 result on next week’s Tuesday. The company’s traffic data in Q3 was slightly above our estimates but did not provide any major surprises. Q3 ASK growth was 10% while RPK growth was 12% (Finnair’s 2019E guidance for capacity growth is 11-12% while revenue is expected to be slightly below capacity growth). With the share price correction, our rating is now “BUY” (prev. HOLD) while our target price remains unchanged at EUR 7.4 ahead of Q3.

No surprises with Q3 traffic data

Finnair’s Q3’19 ASK grew by 10% while we expected ASK growth of 9%. ASK increased especially in North America as a result of the new Los Angeles route which was opened in March 2019 and additional flights to San Francisco. ASK growth in Asia was mainly due to additional frequencies to Hong Kong and Osaka. Finnair’s RPK growth was 12% in July-September vs. our expectation of 10%. Revenue increased especially in the European and North American routes where RPK growth beat ASK growth. Passenger Load Factor increased in all the other market areas expect in Asia where PLF declined by 2.3%. Global uncertainty in world trade and the softening of demand and price pressures have lowered expectations for cargo especially in the Asian market. The Q3 traffic data did not provide any major surprises thus we have kept our estimates intact.

Ease in jet fuel prices during Q3

Jet fuel prices have eased during Q3’19. In Q3, the average spot price of jet fuel in USD declined by 4% from Q2. On a y/y basis, the average Q3 USD price was down by 13%. Similarly, the average spot price in EUR moved down by 3 % q/q and by 9% on a y/y basis.

“BUY” (prev. HOLD) with TP of EUR 7.4

We have kept our Q3’2019E estimates intact after Q3 traffic information. We expect Finnair’s Q3’19E revenue to be EUR 889m while we expect Q3’19E EBIT of EUR 135m resulting in EBIT margin of 15.2%. We expect Finnair’s 2019E total sales to be EUR 3104m (8.9% y/y) while we expect EBIT of EUR 181m. With the share price correction, our rating is now “BUY” (prev. “HOLD”) while our target price remains unchanged at EUR 7.4.

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