Finnair - Gains expected after tough spring
Finnair reports Q2 results on Jul 16. Industrial action has continued to affect performance, while the earnings gains likely to be seen from H2 onwards are already priced in.
Industrial action a major negative for H1’25 earnings
Finnair’s European and Asian PLFs have gained recently, a clear positive profitability driver as the two route areas together contribute more than three quarters of passenger volume even if North American capacity has been growing fastest this year; North Atlantic demand growth didn’t keep up with the pace of supply in Q2, so Q3 still has to prove the decision to allocate capacity there was solid. Finnair has also suffered from extended amounts of industrial action so far this year; the company previously estimated the total cost at about EUR 40m this year, however we deem it likely Finnair will update this figure now that the labor situation at Helsinki Airport has been prolonged. We thus now believe Finnair’s Q2 adj. EBIT will decline by EUR 11m y/y to EUR 33m.
H2’25 earnings outlook already a lot better
We estimate FY’25 adj. EBIT at EUR 115m; we see H2’25 EBIT to gain some EUR 25m y/y as jet fuel prices are still relatively low, albeit slightly trending up recently. Finnair might already narrow its EBIT guidance range a bit as an interval of EUR 100m would be quite large for H2, although many sources of uncertainty still prevail (including ticket and jet fuel prices as well as general cost inflation).
Next year’s earnings gains have been widely priced in
IATA expects airline profits to increase somewhat this year in absolute terms thanks to modest revenue and margin gains. Growth outlook may not be quite as good as it was earlier this year, but Finnair’s peers could still grow by another 5% while jet fuel prices are more modest. Airline valuations have gained in recent months and the median FY’25 EV/EBIT multiple is now about 9x, while Finnair trades close to 13x on our estimates. In our view this elevated multiple reflects the fact that Finnair has suffered significantly from the recent industrial actions, and indeed Finnair’s FY’26 EV/EBIT multiple of roughly 8x is again in line with its peers. We believe Finnair is likely to return to earnings growth in H2’25, however earnings multiples already reflect such expectations. Our new TP is EUR 2.7 (2.4) as we retain our REDUCE rating.