Finnair - Aiming to capture RASK potential
Finnair’s strategy update emphasizes RASK more than CASK, which itself wasn’t a big surprise, however the target for unit revenue growth was more ambitious than expected.
Higher RASK through better service experience
Finnair has updated its financial targets and refined strategy; FY’26 estimates implied the base case assumption for EBIT, after this year’s challenges, was roughly around EUR 150-200m but according to the new targets Finnair aims to reach some EUR 250m by 2029. In our view there should still be plenty of PLF upside potential over the long-term, but the strategy puts more emphasis on retail and customer loyalty initiatives as RASK upside is to be driven by long-haul foreigners but also improved monetization among Finnish passengers (where especially convenience is a big customer satisfaction factor). Ancillary revenues are another major part of improving RASK.
Fleet renewal decisions still to be confirmed
Premiumization has been a big theme in the hospitality and travel industry for a while, and Finnair also tries to capitalize on some of its potential; in this sense wealthier American and Asian passengers are important, and one of the ambitions is to improve such cohort loyalty with additional partner services (e.g. banks and retail institutions) and sell more through digital channels. The update didn’t elaborate that much on fleet renewal, but Finnair says it’s likely to add most of the new aircraft to its own balance sheet rather than lease them. Their financing is to rely largely on operating cash flow, yet Finnair could also raise up to around EUR 200m in new debt as its profitability improves and hence supports leverage ratios.
Earnings multiples are relatively high in the short-term
Finnair remains positioned between low-cost and full-service carriers in terms of CASK; cost discipline is crucial for profitability, but the new strategy aims to get Finnair closer to the FSCs in terms of RASK. The lower end of the 6-8% EBIT margin target range wasn’t a surprise, but the upper end looks ambitious for now. Many airlines do 8% margins, and while we believe it shouldn’t be too hard for Finnair to reach EUR 200m EBIT in the coming years it’s early to expect much more than that. Finnair is valued a bit above 8x EV/EBIT on our FY’26 estimates, which is still a premium relative to key European FSC peers. Our new TP is EUR 2.6 (2.5) as we retain REDUCE rating.