Finnair - Still some way until profitable levels

Finnair’s Q3 results and updated outlook didn’t provide major surprises considering the persistent uncertainty around long-haul air travel, however the operating loss guidance until the end of H1’22 was a minor negative.

Some initial steps towards profitability

Q3 revenue amounted to EUR 199m, compared to the EUR 264m/247m Evli/cons. estimates. Passenger revenue came in lower than we estimated, but cargo continued to support operations and in our view the freight performance explains a large part of the narrowing in Q3 operating loss. Q3 EBIT was EUR -109m vs the EUR -149m/-144m Evli/cons. estimates. Demand is right now focused on European leisure travel, while business travel has taken some tentative initial steps in Northern Europe. Finnair’s operating cash flow already turned positive in Q3, the first time since Q4’19. The company has built a EUR 1.2bn cash position; the buffer stands high in part to meet loan repayments due next year. Finnair doesn’t expect any major narrowing in Q4 operating loss. Our updated Q4 EBIT estimate is EUR -76m (prev. EUR -65m).

Profitable RPK levels will still have to wait many quarters

Finnair opens routes to Thailand and the US in November, while Japan and South Korea should follow around year-end. China may not open before H2’22; China is an important destination for Finnair and thus decent profitability will probably have to wait until H2’22. Q1’22 at least will remain in the red, but we would expect losses to narrow considerably already in Q2’22 if destinations excluding China are able to support adequate volumes. Q2’22 is still likely to result in an operating loss. Finnair’s updated outlook wasn’t a huge surprise as it was well known Asian passenger volume recovery will lag those of Western routes. We revise our FY ’22 RPK estimate down by 12%. We now estimate FY ’22 EBIT at EUR 30m (prev. EUR 75m), however we make only minor revisions to our FY ’23 estimates.

We consider FY ’23 multiples to be in line with peers’

Finnair is valued high relative to peers on our FY ’22 estimates (6x EV/EBITDA and 70x EV/EBIT) due to slow Asian route recovery, but on our FY ’23 estimates the multiples narrow to 4x EV/EBITDA and 10x EV/EBIT. We find the levels to be, overall, in line with peers. We retain our EUR 0.65 TP and HOLD rating.

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