Finnair - A bit overcast for now

FY’25 EBIT guidance range likely to stay wide for now

Finnair guided EUR 3.3-3.4bn revenue and EUR 100-200m EBIT for the year; the double-digit top line growth outlook was driven by the combination of still increasing capacity and demand, the latter of which should outpace the former so that PLFs would gain from the rather low levels seen last year. The lower end of EBIT range seemed conservative, although there were questions related to cost inflation. Finnair decided to allocate capacity to North Atlantic routes, which saw robust profitability also last year while Europe was softer. This might have seemed a reasonable plan just recently, but the 3 big American carriers all lately gave cautious comments on their domestic routes; the North Atlantic routes still seem to hold well as far as they are driven by relatively wealthy American travelers, however US-bound travel is reportedly facing notable headwinds. 

Many recent developments, but EBIT still has potential to gain

North Atlantic routes have never been quite that big for Finnair as they contributed less than 10% of revenue also in the past two years, and it’s possible Finnair’s growth proceeds according to plan this year, but even if the US-travel boycotts are not an issue the trade war remains a factor which could hurt other routes’ demand. Pilots’ industrial action is another issue since we believe their salaries amount to some 25-30% of Finnair’s above EUR 500m annual staff costs. On the positive side jet fuel prices have declined by around 15% in the past couple of months; this would represent a big earnings tailwind in the coming quarters, should the prices remain low, as Finnair’s annual fuel bill has recently been around EUR 900m. On the other hand, in the current environment ticket prices might continue to soften. 

Next few months should show further positive progress

In our view Q1 EBIT is likely to remain in the red; we don’t believe Finnair will significantly narrow its EBIT guidance range at this point since there are still so many sources of uncertainty. Finnair is valued about 8.5x EV/EBIT on our FY’25-26 estimates, a bit above peers. Our estimates could prove conservative towards next year especially in a potential scenario where travel demand holds up while fuel prices stay low, however we see there remains too much uncertainty for now. Our TP is now EUR 2.8 (3.0) as we retain our REDUCE rating.