Finnair - Starting to look better again
Finnair reports Q3 results on Oct 30. In our view the underlying Q3 results could already be relatively strong, but better performance towards next year is widely expected.
Earnings should again improve after industrial action
Finnair’s FY’25 adj. EBIT will be largely ruined by industrial action; early July still suffered from such action so that Q3 sees a negative impact of ca. EUR 20m. We expect ticket prices to have stabilized and estimate Q3 revenue to have grown 5% y/y. Our EUR 64m Q3 EBIT estimate is EUR 7m below the comparison figure, meaning Finnair would achieve y/y earnings gains without the costs of industrial action but would still be below the high EUR 94m comparison figure seen 2 years ago. We estimate FY’25 adj. EBIT at EUR 71m, slightly below the guidance midpoint.
Asia and Europe performed well in Q3, North Atlantic less so
Jet fuel prices have remained relatively stable, albeit slightly declining, in the past 3 months. We thus expect Finnair’s Q4 adj. EBIT to gain EUR 11m y/y as ticket prices stabilize and volumes continue to grow while cost inflation stays rather modest. Finnair’s FY’25 guidance suggests the company might have been able to reach some EUR 150m EBIT without the costs of industrial action; we estimate EBIT to improve to EUR 180m (5.5% margin) next year as global aviation volumes grow more. Finnair seems to have however recently adjusted North Atlantic capacity down in response to weaker than expected demand, since its ASK declined by 6% y/y in September while it still grew 45% in August. Finnair’s capacity growth now seems to focus on Asia, where PLFs are already well above 80%, while Europe and North Atlantic don’t need to see that much additional capacity since their PLFs hover only around 75%. We expect updates next month on Finnair’s future narrow body fleet renewal as well as how its strategy should develop going forward (e.g. strengthening unit revenues vs reducing unit costs).
Multiples largely in line with peers from next year onwards
Finnair is valued about 20x EV/EBIT on our FY’25 estimates as earnings dip due to industrial action, but the 8x multiple on our FY’26 estimates is in line with peers. Our EBIT estimates are a bit below the targeted 6% margin, so in that sense the multiples aren’t very stretched, but Finnair also begins to invest in new narrow bodies in the coming years and this will burden the balance sheet even if Finnair’s cash flow covers some of the outlay. We retain our EUR 2.7 TP and REDUCE rating.