Finnair - Passenger demand holding up well
This year may not prove quite as ruinous for airline earnings as feared, yet the situation remains very fluid for now.
Q1 earnings beat due to rather low costs
Finnair’s Q1 revenue grew 12% y/y and was as estimated, yet the EUR -0.6m adj. EBIT was slightly higher than the EUR -17.8m/-4.8m Evli/cons. estimates due to lower-than-expected costs; aircraft materials and overhaul for instance were again lower than we estimated. Finnair specified its outlook a bit by lowering capacity growth estimate 200bps to 3% yet left its guidance intact, unsurprisingly implying higher ticket prices.
Airline earnings could hold relatively well despite headwinds
Demand still appears robust even if ticket fares are increasing; in our view there was a risk, unlike in 2022-23 after the previous fossil fuel spike, that this time demand will not hold as high since there should no more be significant pent-up demand as was following the pandemic. Finnair’s 10% y/y ticket liability gain already reflects price hikes but is also due to a meaningful volume increase. There could still be bigger operational issues if jet fuel availability becomes a problem; so far this doesn’t seem to be the case in Western countries, yet Asia is more vulnerable. Q1 was an encouraging data point from Finnair’s perspective after the challenges last year, yet our updated FY’26 EBIT estimate of EUR 140m remains below the EUR 155m guidance midpoint. The narrow-body upgrade is a flexible plan; first and foremost a renewal program, however there’s also a growth option which could see narrow-body ASK increase by roughly 10%, or 5% of total capacity. The plane deliveries will begin next year, and we estimate the total investment to be some EUR 2bn should the program be exercised in full.
Still a lot of estimate uncertainty amid all the dynamics
It’s still early to say exactly how challenging the summer season will turn out to be since the situation is very dynamic when it comes to ticket and jet fuel prices. Airline earnings are to contract by at least some amount but are likely to start to bounce back towards next year. Finnair is valued around 9-10x EV/EBIT on our FY’26-27 estimates, which reflects some increasing NIBD going forward when the investment program starts. The multiples aren’t very high all things considered, yet it’s still hard to see meaningful upside amid all the uncertainty. Our TP is now EUR 2.9 (3.0) as we retain REDUCE rating.