Finnair - A lot of estimate uncertainty

FY’26 EBIT outlook not quite that rosy any longer

Finnair was well-positioned to reach the upper end of its EUR 120-190m FY’26 EBIT guidance since Asia and Europe were developing favorably while early signs of North American stabilization could be seen. Then jet fuel prices doubled over the first few weeks of March; prices have since declined a bit but are still almost twice the levels before the war. The prices rose much faster than those of crude oil as there aren’t large buffers since jet fuel can’t be stored for that long due to the strict quality standards. Many significant locations where jet fuel is refined are also geographically distinct from crude oil production, so the current logistical challenges further contribute to the problem. 

Jet fuel prices are very likely to decline more from here on

Jet fuel prices are likely to decline at least a bit more over the following months even if the war continues and crude oil prices remain at their present levels; airlines could see a big cost pressure relief if the situation unwinds soon, and fares are already rising at double-digit rates. Finnair also saw its RASK increase by more than 20%, of which almost half was due to a higher PLF. We believe ticket pricing will be very dynamic given the current situation and there could be significant amounts of price variation between specific routes and different areas. 

Sector profitability estimates may be trimmed some more

The low-end of the EBIT guidance looked conservative back in February, but now we estimate FY’26 EBIT at EUR 123m. We find the airline sell-off surprisingly small given the ATH fuel prices, although it could be at least partially justified by the very likely further fuel price declines in the coming months. The situation remains challenging in the short-term even if airlines are able to pass most of the higher fuel costs on to fares. Finnair’s peers’ FY’26 EBIT margin estimates have been so far trimmed only ca. 100bps in the median case, and hence their median FY’26 EV/EBIT multiple has risen by about 0.7x in the past two months. Finnair now trades some 12x EV/EBIT on our FY’26 estimates, about 40% higher than peers. We believe the gap will narrow as sector estimates still appear too high; the huge fuel price volatility and all its consequences create uncertainty around estimates, but Finnair’s valuation doesn’t yet represent a bargain. Our new TP is EUR 3.0 (3.3) as we retain REDUCE rating.