Finnair - Summer should clear the skies
Finnair’s Q1 earnings disappointment was due to three factors, including soft top line, costs of industrial action as well as generally higher costs. Earnings trend could again turn in Q2, but we still see too many sources of uncertainty.
Big earnings miss due to three things
Finnair’s EUR 694m Q1 revenue was soft relative to the EUR 713m/715m Evli/cons. estimates as passenger revenue came in some EUR 25m below our estimate due to lower pricing in EMEA routes; fares have stayed quite stable lately but still declined by 5% y/y due to the high comparison period. Industrial action negatively affected EBIT to the tune of EUR 22m, while general cost inflation was another drag; many cost line items increased at a double-digit rate while we estimated high-single digit increases. Finnair’s EUR -63m comparable EBIT thus fell significantly short of the EUR -14m/-13m Evli/cons. estimates because of these three factors. Finnair retained its earlier guidance but added that the on-going industrial action will leave a total hit of about EUR 40m to the bottom line over the year.
The wider operating environment is still not too bad
The base case scenario seems to be that travel demand continues to hold reasonably well this year and could even increase faster than capacity. In our view Finnair should see roughly stable development in Q2 EBIT y/y so long as RPK continues to grow faster than ASK by a couple of percentage points, the industrial action will already be less of a burden and the cost inflation seen in Q1 moderates a bit. H2’25 EBIT could then gain by almost EUR 30m y/y assuming jet fuel prices stay reasonably low. At such a run-rate Finnair would then be able to reach or land near EUR 200m EBIT next year.
Another EBIT inflection point perhaps near
We estimate FY’25 comparable EBIT at EUR 133m, on which basis Finnair is valued some 10.5x EV/EBIT. That level is some 30% above most airlines, but the multiple declines to slightly above 7x on our FY’26 estimates and would then be in line with peers. We thus consider Finnair’s current valuation quite neutral. The industrial action’s ultimate cost is just one of many risk factors at play now, and in our view the downside risks to demand on one hand and cost trends (including beneficially low jet fuel prices) on the other are even more significant when looking towards the summer and beyond. Our new TP is EUR 2.4 (2.8) as we retain our REDUCE rating.