Finnair |

A network airline specializing in connecting Europe and Asia

| Finland

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Financial overview

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Finnair - Normalizing capacity growth in ‘20E

10.02.2020 | Company update

Finnair delivered strong Q4 result. Q4 revenue was EUR 774.9m vs. our 740m (cons. 744m) while adj. EBIT amounted to EUR 31.2m vs. our 8.2m (cons. 9.0m). Finnair expects ‘20E capacity growth of ~4% but didn’t provide more detailed ‘20E guidance due to the coronavirus. We keep our rating “HOLD” with TP of EUR 6.3 (6.5).

Q4 better than expected

Finnair’s Q4 result beat the expectations in terms of both revenue and profitability. Revenue grew by 13.4% y/y and amounted to EUR 774.9m vs. our EUR 740m (cons. 744m). The difference is mainly due to Finnair’s better than anticipated revenue management (i.e. ticket fares). Revenue development was good especially in North America (38.5% y/y) and in Europe (17.3% y/y). Q4 costs were as expected with fuel cost of EUR 171m (Evli 171m) and other OPEX (incl. D&A) of EUR 588m (Evli 580m). Q4 adj. EBIT was EUR 31.2m vs. our EUR 8.2m (cons. EUR 9.0m). Proposed dividend for ’19 is EUR 0.20 vs. our EUR 0.11 (cons 0.10).

Expecting ASK growth of ~4% y/y

Finnair’s capacity (ASK) growth was strong in ’19 (11.3% y/y), driven by two new A350s, received last year and one A350, received in Dec’18. The added capacity was mainly put to Asian routes. Two more A350s are expected to be delivered during H1’20E. For 20E, Finnair guides capacity growth of ~4% y/y while our expectation is at 3.6% y/y. We expect the good performance to continue especially in Europe where many airlines have cut capacity but also in North America. We expect cargo to remain relatively soft in ’20E due to continuing uncertainties around global trade.

Weak visibility due to the coronavirus

Finnair did not provide a revenue estimate for 20E, as the total impacts of the coronavirus are still unknown. Finnair has suspended all the flights to mainland China, which might continue until the end of March. Finnair estimates that the Q1’20E financial impacts remain limited as the post Chinese New Year time is usually relatively quiet in terms of traveling. Due to the coronavirus, one delivery of A350 will be delayed from April to June. We have slightly decreased our Q1’20E revenue expectation (approx. -1%) but expect the impacts for the full year to remain limited.

“HOLD” with TP of EUR 6.3 (6.5)

We expect 20E revenue of EUR 3191m (3% y/y) and adj. EBIT of EUR 171m (5% y/y), resulting in adj. EBIT margin of 5.4%. However, as the visibility of the coronavirus is weak, there are uncertainties especially with our short-term estimates. On our estimates, Finnair trades at ‘20E-'21E EV/EBIT multiple 9.2x and 8.4x, which translates into ~10-20% premium compared to the peers. We keep our rating “HOLD” with TP of EUR 6.3 (6.5).

Finnair - Earnings above expectations

07.02.2020 | Earnings Flash

Finnair’s Q4’19 adj. EBIT was EUR 31.2m vs. our expectation of EUR 8.2m and consensus of EUR 9.0m. Revenue was EUR 775m vs. our expectation of EUR 740m and consensus of EUR 744m.

• Q4 revenue was EUR 774.9m vs. EUR 740m/744m Evli/cons.

• ASK increased by 10.6% in Q4. RASK increased by 2.5% y/y.

• Q4 adj. EBIT was EUR 31.2m vs. EUR 8.2m/9.0m Evli/cons. Q4 comparable EBITDA was EUR 120.7m vs. EUR 89.7m our view.

• Absolute costs in Q4: Fuel costs were EUR 171m vs. EUR 171m our view. Staff costs were EUR 136m vs. EUR 133m our view. All other OPEX+D&A combined were EUR 451m vs. EUR 447m our view.

• Unit costs: CASK was 6.42 eurocents vs. 6.31 eurocents our view.

• Q4 EPS was EUR 0.17 vs. -0.14/-0.12 Evli/cons.

• 2019 dividend: EUR 0.20 vs. 0.11/0.10 Evli/cons.

• Finnair expects capacity increase of ~4% in 2020 but due to the coronavirus the company does not provide a full year revenue estimate.

Finnair - Strong Q4 traffic supports revenue growth

29.01.2020 | Preview

Finnair will report its Q4 result on next week’s Friday, 7th of February. The company’s Q4’19 traffic was in line with our expectations thus we have made only minor adjustments to our estimates. We expect Q4 revenue of EUR 740m and EBIT of EUR 8.2m. We keep our rating “HOLD” with TP of EUR 6.5 ahead of Q4.

Good Q4 traffic data

Finnair’s traffic met the expectations in Q4. Capacity (ASK) grew by 10.6% vs. our 9.4% expectation, while sold capacity (RPK) grew as much as 13.6% vs. our 9.4% expectation. Thus, passenger load factor (PLF) increased by 2.1 percentage points to 79.0% in Q4. PLFs grew in all the market areas but especially in Europe (+3.4pp) and in Finland (+3.4pp). Total passenger number rose by 11 % y/y. Cargo development continued soft as the global uncertainty in world trade continued to press the global air freight market, especially in Asia. We expect Q4 revenue of EUR 740m (Q4’18: 684m) and EBIT of EUR 8.2m (Q4’18: 26.5m).

Slight increase in jet fuel prices

Jet fuel prices slightly increased towards the end of the year. The average price in USD moved up by 1% and in EUR by 2% on a q/q basis compared to Q3’19. Yet the average price in Q4’19 was still -7% lower y/y in USD and -4% lower in EUR.

Coronavirus hampers share price

Finnair’s share price has slumped after the fears around Coronavirus rose. In order to control the situation, China has restricted traveling and day-to-day business in some areas, which affects Finnair’s operations in Asia. The impacts for Finnair’s financial outlook are still unknown thus we have not made changes to our estimates. We expect to get more color on this with the Q4 result.

“HOLD” with TP of EUR 6.5 intact

We have kept our estimates largely intact ahead of Q4 result. For FY19E we expect revenue of EUR 3077m (FY18: EUR 2850m) and adj. EBIT of 140m (FY18: EUR 218m), resulting in EBIT margin of 4.6% which is at the lower end of the guided adj. EBIT margin level of 4.5-6.0%. We expect Finnair to propose a dividend of EUR 0.11 per share for ’19. We keep our rating “HOLD” with TP of EUR 6.5 intact ahead of Q4.

Finnair - CMD notes

13.11.2019 | Company update

Finnair held its CMD yesterday where the company presented its road map for sustainable and profitable growth after a phase of accelerated growth. The company aims to grow in line with market growth, focusing on improving its market position in Asia. The company provided a mix of efficiency improvement actions in order to improve profitability. We don’t expect any short-term impacts hence we retain our rating “HOLD” with TP of EUR 6.5.

Focusing on Asian mega cities

Finnair continues to focus on improving its market position in Asia. The company’s geographical position provides Finnair a competitive advantage of transfer traffic between Europe and Asia. Transfer traffic between the two continents is essential as transfer traffic represents 62% of Finnair’s flown ticket revenue of which transfer traffic from Asia represents 73%. The company will concentrate on Asian mega cities which are providing higher yields. Japan and China are the two main markets but Finnair increases its presence also in other Asian countries, South Korea being an example as the company opens a new route to Busan in March 2020. The market growth is estimated to be some 4% between Europe and Asia. The company aims to be a modern premium airline and has renewed its website and mobile app to better serve its customers globally. The company is also renewing its ticket types and will offer a new option, premium economy class alongside with the normal economy and premium classes.

Heavy investments on fleet renewal

During the past few years, Finnair has focused on accelerated growth. The company has increased its capacity in 2015-2019 by 14 new A350 aircrafts and five more has been ordered (for 2020-2022). During the strategy period, the company aims to increase its wide-body fleet from 22 to ~30 and the total fleet from 83 to ~100. The company has estimated that the fleet investments during 2020-2025 will be some EUR 3.5b-4.0b (including the five new A350s) depending on the final fleet renewal plan. According to the company, one-third of the investments will be invested into growth and the remaining two-thirds into fleet renewal/replacement. The company aims to increase the share of its owned aircrafts. The investments will predominantly be funded by the company’s cashflow.

Updated financial targets for 2020-2025

Finnair updated its financial targets for 2020-2025 as the company is moving towards a new phase where the company seeks sustainable and profitable growth. The company’s opex (ex fuel) has increased by 6.1% (CAGR) since 2014, which exceeds the revenue growth of 5.5% (CAGR). Based on the strategy update, the company aims to moderate its growth and expects it to be in line with the market growth. Finnair guides ASK growth (CAGR) of 3-5% which is in line with our expectations (3-4% in 20E-21E). The company’s new target is to reach comparable EBIT margin of over 7.5% (prev. over 6%) over the cycle (at constant fuel and currency), after a 12-18 month build-up period. Profitability improvement will be driven by operational efficiency. Key drivers for lower unit costs are fuel efficiency, digitalization and automatization as well as improved on-time performance. Finnair targets to improve its OTP rate to 85% (2018: 78%). Also, fleet renewal should boost efficiency and updated ticket types to support margins. We see Finnair’s profitability target achievable, although we don’t expect any short-term impacts as the improvement of OTP is gradual and implementation of new processes takes time. Finnair also updated its ROCE target and expects ROCE of over 10% (prev. over 7%) over the cycle (at constant fuel and currency), after a 12-18 month build-up period. The company will provide more information of its sustainability targets in Q1’20.

HOLD with TP of EUR 6.5

We have made small adjustment mainly to our 21E estimates after the CMD. We expect revenue to grow 3-4% in 20E-21E while we expect comparable EBIT margin of 5.2% and 6.6%. The updated strategy does not impact our short-term estimates but we see the new targets to create positive outlook for Finnair’s earnings development in the future. We keep our rating “HOLD” with TP of EUR 6.5.

Finnair - Market outlook remains volatile

23.10.2019 | Company update

Finnair’s Q3 earnings fell short of expectations. We have cut our estimates for 2019E-2021E after Q3 earnings. Considering the weakening profitability trend and market outlook uncertainties we do not see valuation being particularly attractive. We downgrade to “HOLD” with TP of EUR 6.5 (prev. EUR 7.4).

Profitability weighed down by fuel costs and currencies

Finnair’s Q3 revenue increased by 7.9% and was EUR 870.3m vs. our expectation of EUR 889.2m and consensus of EUR 871.4m. The revenue was boosted by increased passenger numbers (11.9% y/y). Especially the European traffic development was good as well as traffic in North America due to the new Los Angeles route which was opened last March. Finnair’s traffic from Asia to Europe remained at good level, whereas demand from Europe to Asia was softer. Capacity (ASK) increased by 9.5% y/y while RASK decreased by 1.5% y/y. Finnair’s Q3 profitability fell short of expectations as comparable EBIT decreased by ~14% from last year and was EUR 100.7m vs. our expectation of EUR 135.4m and consensus of EUR 121.9m. Profitability was weighed down by fuel costs (incl. hedging), a decline in the dollar-based discount rate on maintenance reserves and negative exchange rate effects. Also, softening demand in cargo impacted Finnair’s Q3 earnings.

Global uncertainties increasing risks

We expect the market outlook to remain volatile in the latter half of the year as the global economies of Finnair’s key markets are slowing down and the uncertainties surrounding global trade, such as Brexit and US-China trade talks continue which could have an impact on air travel and cargo demand. We have already seen some softening in cargo demand especially in Asia and we expect the market environment to remain challenging. Finnair experienced some lower air travel demand in Hong Kong in Q3 and we expect this to continue as long as the disorder continue. We expect Finnair to gain some competitive advantage in short term, especially in the European routes as Norwegian has cut down its capacity growth expectations for 2019 (Norwegian expects capacity growth of 0-5% in 2019). Considering the tight competition, we expect the advantages to last only for a short time.

Guidance for 2019E unchanged

Finnair reiterated its guidance and expects capacity growth of 11%-12% which is mainly due to the new route to Beijing’s Daxing International Airport which will be opened in early November. The company expects revenue to grow at a slightly slower pace than capacity in 2019E. Finnair expects adj. EBIT margin to be between 4.5-6.0% in 2019, assuming no material changes in fuel prices and exchange rates. We expect capacity to grow by 11% in 2019E while we expect RPK growth of 10% and total revenue growth of 8%. Our expectation for 2019E adj. EBIT margin is at the lower end of the guidance at 4.6%.

Estimates cut – downgrade to “HOLD”

After Q3’19 earnings we have cut our 2019E-2021E estimates. We have lowered our 2019E-2021E revenue expectations by ~1% and cut our EBIT estimate for 2019E by 23% and for 2020E-2021E by 12-17%. We now expect 2019E revenue of EUR 3074m (prev. EUR 3104m) while our 2019E adj. EBIT expectation is at EUR 140m (prev. EUR 181m) resulting in EBIT margin of 4.6%. Considering the weakening profitability trend and market outlook uncertainties we do not see valuation being particularly attractive. With our new TP of EUR 6.5 (prev. EUR 7.4) Finnair trades on our estimates at its historical average of NTM EV/EBITDA of 3.5x. After estimates cut we downgrade our rating to “HOLD” (prev. “BUY”).

Finnair - Profitability clearly below estimates

22.10.2019 | Earnings Flash

Finnair’s Q3’19 adj. EBIT was EUR 100.7m vs. our expectation of EUR 135.4m and consensus of EUR 121.9m. Revenue was EUR 870.3 vs. our expectation of EUR 889.2 and consensus of EUR 871.4m. Finnair reiterated its guidance. The company expects capacity growth of 11-12% and revenue to grow at a somewhat slower pace than capacity in 2019. Finnair expects its EBIT% to be between 4.5%-6.0% in 2019.

  • Q3 revenue was EUR 870m vs. EUR 889m/871m Evli/cons.
  • ASK increased by 9.5% in Q3. RASK decreased by 1.5% y/y.
  • Q3 adj. EBIT was EUR 101m vs. EUR 135m/122m Evli/cons. Profitability was negatively impacted by the year-on-year increase in jet fuel price paid (incl. hedging), a decline in the dollar-based discount rate on maintenance reserves and negative exchange rate effects.
  • Q3 comparable EBITDA was EUR 182m vs. EUR 213m our view.
  • Absolute costs in Q3: Fuel costs were EUR 190m vs. EUR 187m our view. Staff costs were EUR 132m vs. EUR 131m our view. All other OPEX combined were EUR 461m vs. EUR 455m our view.
  • Unit costs: CASK was 6.10 eurocents vs. 5.97 eurocents our view

Finnair - Q3 traffic close to expectations

16.10.2019 | Preview

Finnair will report its Q3 result on next week’s Tuesday. The company’s traffic data in Q3 was slightly above our estimates but did not provide any major surprises. Q3 ASK growth was 10% while RPK growth was 12% (Finnair’s 2019E guidance for capacity growth is 11-12% while revenue is expected to be slightly below capacity growth). With the share price correction, our rating is now “BUY” (prev. HOLD) while our target price remains unchanged at EUR 7.4 ahead of Q3.

No surprises with Q3 traffic data

Finnair’s Q3’19 ASK grew by 10% while we expected ASK growth of 9%. ASK increased especially in North America as a result of the new Los Angeles route which was opened in March 2019 and additional flights to San Francisco. ASK growth in Asia was mainly due to additional frequencies to Hong Kong and Osaka. Finnair’s RPK growth was 12% in July-September vs. our expectation of 10%. Revenue increased especially in the European and North American routes where RPK growth beat ASK growth. Passenger Load Factor increased in all the other market areas expect in Asia where PLF declined by 2.3%. Global uncertainty in world trade and the softening of demand and price pressures have lowered expectations for cargo especially in the Asian market. The Q3 traffic data did not provide any major surprises thus we have kept our estimates intact.

Ease in jet fuel prices during Q3

Jet fuel prices have eased during Q3’19. In Q3, the average spot price of jet fuel in USD declined by 4% from Q2. On a y/y basis, the average Q3 USD price was down by 13%. Similarly, the average spot price in EUR moved down by 3 % q/q and by 9% on a y/y basis.

“BUY” (prev. HOLD) with TP of EUR 7.4

We have kept our Q3’2019E estimates intact after Q3 traffic information. We expect Finnair’s Q3’19E revenue to be EUR 889m while we expect Q3’19E EBIT of EUR 135m resulting in EBIT margin of 15.2%. We expect Finnair’s 2019E total sales to be EUR 3104m (8.9% y/y) while we expect EBIT of EUR 181m. With the share price correction, our rating is now “BUY” (prev. “HOLD”) while our target price remains unchanged at EUR 7.4.

Finnair - Weaker 19E profitability expectations

18.07.2019 | Company update

Finnair’s Q2 profitability fell short of expectations. The company issued new FY19E guidance for profitability. Global market uncertainties and weaker outlook for cargo business are likely to impact H2’19. We have cut our 19E-20E adj. EBIT estimates after Q2 result. Despite of the sizeable drop in share price we do not see valuation being particularly attractive considering the weakening profitability trend. Hence, we retain “HOLD” with TP of EUR 7.4 (prev. 8.0).

FY19E outlook remains volatile

Finnair expects EBIT% of 4.5%-6.0% for 2019E, which is clearly weaker than 2018 EBIT% of 7.7%. Increased fuel costs and high irregular maintenance costs in Q2 as well as weak profitability Q1 are burdening profitability expectations for FY19E. The operating environment is expected to remain volatile and continued uncertainties in global trade, such as Brexit and US-China trade talks could have an impact on air travel and cargo.

Good capacity growth in 2019E

Finnair’s capacity growth in Q2 (+14.8%) was good and the company strengthened its market share in both Asia and Europe. Finnair updated its guidance for 19E capacity growth as the new route to Beijing’s Daxing International Airport will be opened in early November. The company expects capacity growth to be 11%-12% (previously 10%) and revenue growth slightly below that in 2019E. Our capacity growth estimate is 11%, while we expect revenue to grow 9% in 2019E.

“HOLD” with TP of EUR 7.4 (prev. 8.0)

As a result of updated FY19E guidance and weak H1 profitability we have decreased our 2019E EBIT expectation from EUR 203m to EUR 181m resulting EBIT% of 5.8% (prev. 6.5%). We see revenue of EUR 3104m for 2019E. Considering the weakening profitability trend and market outlook uncertainties we do not see valuation being particularly attractive for 2019E-2020E. With our new TP of EUR 7.4 (prev. 8.0) Finnair trades on our estimates at its 3yr historical average NTM EV/EBITDA of 3.4x. We retain our rating “HOLD”.

Finnair - Q2 result below our estimates

17.07.2019 | Earnings Flash

Finnair’s Q2’19 adj. EBIT was EUR 47m vs. our expectation of EUR 65m and consensus of EUR 62m. Sales was EUR 793m. Finnair’s Q2 number of passengers rose to a new Q2 record and the company’s market share strengthened in both Asian and European markets. The growth development of cargo and travel services was not as favorable in Q2. Finnair issued its guidance for 2019E. The company expects capacity growth of 11-12% and revenue to grow at a somewhat slower pace than capacity in 2019. Finnair expects its EBIT% to be between 4.5%-6.0% in 2019.

  • Q2 revenue was EUR 793m vs. EUR 806m/799m Evli/cons.
  • ASK grew by 14.8% in Q2. RASK growth decreased by 3.8%.
  • Q2 adj. EBIT was EUR 47 m vs. EUR 65m/62m Evli/cons. This was impacted by a EUR 13m increase in fuel price and exceptionally higher maintenance costs.
  • Q2 comparable EBITDA was EUR 126m vs. EUR 143m our view.
  • Absolute costs in Q2: Fuel costs were EUR 181m vs. EUR 174m our view. Staff costs were EUR 137 m vs. EUR 137m our view. All other OPEX combined were EUR 441m vs. EUR 370m our view.
  • Unit costs: CASK was 6.06 eurocents vs. 6.02 our view while CASK ex fuel was 4.59 eurocents vs. our view of 4.61

Finnair - Strong passenger numbers support sales

10.07.2019 | Preview

Finnair’s traffic data in April-June indicates Q2’19 revenue of EUR 806m. We expected Q2 revenue of EUR 785m while consensus was at EUR 778m. Capacity growth in Q2 was above the company’s 2019E guidance (14.8% vs. 10% 2019E guidance) and our Q2 expectation of 12%. Fuel price continued to move up in Q2. We maintain our rating “HOLD” with to TP of EUR 8 ahead of Q2.

Strong passenger number growth and improved load factor

Finnair’s passenger numbers in Q2 grew by 13% y/y and hit the monthly all-time company record in June with 1.4m passengers in total. Overall capacity (ASK) grew by 14.8% y/y which was above our expectation of 12%. Capacity increase was mainly supported by three new A350-aircrafts that entered the service in December 2018, February 2019 and April 2019 and by one new A321-aircraft that was added to European routes. In North America, capacity increased following the new Los Angeles route and frequency additions to San Francisco. Sold capacity (RPK) growth was in line with the capacity growth at 14.7% y/y and clearly beat our growth expectation of 10%. Q2 passenger load factor (PLF) improved from Q1 and was 82.5% (-0.1% y/y growth vs. our expectation of -1.4% y/y).

Fuel price continued to move up in Q2

Jet fuel price development has continued in line with Q1. In Q2, the average spot price of jet fuel in USD moved up by 4% from Q1. On a y/y basis, the average Q2 USD price was down by 8%. Similarly, the average sport price of jet fuel in EUR moved up by 5% q/q and was down by 3% on a y/y basis.

“HOLD” with TP of EUR 8

As a result of Finnair’s strong April-June traffic data we have increased our Q2 revenue expectation from EUR 785m to EUR 806m (12% y/y) while keeping other estimates intact. We foresee Q2 adj. EBIT of EUR 65m (8.0% margin). We maintain our rating “HOLD” and TP of EUR 8 intact ahead of Q2.

Finnair - Global traffic expected to grow in ‘19E

25.04.2019 | Company update

Finnair’s Q1’19 results fell short of expectations. Comparable EBIT was EUR -16.2m vs. -6m our view. Especially passenger growth in China was low. The company expects increased competition due to increased capacity especially on routes between Europe and Asia. Finnair reiterates its guidance: 10 % capacity growth in 2019 and revenue growth of slightly slower. We keep our “HOLD” rating with TP of EUR 8.0.

Q1: costs and fuel weighed down the result

Finnair’s revenue was in line with our expectation (EUR 673m vs. 679m our view). The company’s Q1 adj. EBIT was clearly below expectations at EUR -16.2m vs. EUR -6m Evli and EUR -6m cons. Compared to our estimates the loss was driven by increased costs. Operating costs (excl. fuel and staff costs) were EUR 353m vs EUR 339 our view. Increase in OPEX was driven by higher passenger and handling costs as well as increased aircraft materials and overhaul costs. Fuel costs increased from the year end but was below our expectations (EUR 145m vs. 155m our view).

Competition expected to increase in 2019

Finnair guides 10 % ASK growth in 2019 with passenger revenue slightly behind. This will be driven by Feb-2019 delivered A350 and a second A350 which will be delivered in Q2’19. Added capacity will be mostly put to Asian routes. Finnair expects increased competition due to added capacity especially on routes between Europe and Asia. Based on Q1 results, we have made small adjustments to our cost estimates but revenue remains intact. We expect EBIT 2019E to be EUR 195m (previous estimate EUR 203m).

Retaining “Hold” with TP of EUR 8

It is notable that the peer multiples might not reflect the changes of IFRS 16 yet which makes the comparison challenging. On our estimates Finnair trades at an EV/EBITDA of 3.4x and P/B of 1.1x in FY19E-20E, while generating ROCE of ~7% with a WACC of 8.9. We see valuation as fair and hence retain “Hold” with TP of EUR 8.0.

Finnair - EBIT below expectations

24.04.2019 | Earnings Flash

Finnair’ Q1 adj. EBIT was clearly below what we expected at EUR -16.2 vs. our expectation of EUR -6m. Consensus was at -6m. Finnair 2019E guidance reiterated; 10% capacity growth and revenue growth somewhat behind capacity. Especially transfer traffic between Asia and Europe grew well as well as cargo. Finnair expects the competition to increase especially between Europe and Asia and in Asian traffic as the capacity increases. Finnair’s figures were largely impacted by IFRS 16 changes.

  • Q1 revenue was EUR 673m vs. EUR 679m/680m Evli/cons.
  • ASK grew by 10.4 % whereas RASK decreased 4.9 % in Q1.
  • Q1 adj. EBIT was EUR -16m vs. EUR -6m/-6m Evli/cons. The difference is caused by increased expenses and higher price of fuel compared to the previous year.
  • Q1 comparable EBITDA was 60m vs. 75m our view. Pre-tax profit was -49m vs. -31m our view. The difference comes partly from financial expenses that were EUR 31.6m vs. EUR 25m our view.
  • Absolute costs: Fuel costs were EUR 145m vs EUR 155m our view. Staff costs were EUR 130 vs. 128m our view. All other OPEX combined were EUR 429m vs. 339m our view.
  • Unit costs: CASK was 6.46 eurocents vs. 6.42 our view while CASK ex fuel was 5.02 eurocents vs. 4.97 our view.

Finnair - Capacity growth as expected

17.04.2019 | Preview

Finnair’s capacity growth in Q1 was in line with the guidance for 2019E (10.4% vs. guidance 10%) and with our Q1 expectation of 11 %. Passenger growth on the other hand was weaker than expected. We have implemented the IFRS 16 changes to our estimates and kept Q1 expectations mainly intact. We keep our rating “HOLD” and target price of EUR 8.0 ahead the Q1.

Soft start in Q1 traffic information

Finnair’s traffic continued soft in Q1. Overall capacity (ASK) grew by 10.4 %, which is somewhat in line with our 11 % expectation. Sold capacity (RPK) growth was only 4.2 % which stayed clearly below our estimation of 7 %. As a result of that, passenger load factor (PLF) continued decline by 4.6 % percentage points in Q1 to 78,3 %. Largest drop was in Asia (-6.2pp) but also in Europe (-3.2pp) and domestic (-3.2pp).

Fuel prices rising from its lowest point

Jet fuel prices reached its lowest point during the turn of the year but has increased since then. Average price moved on q/q basis by -7% in EUR and by -8% in USD compared to the average prices of 4Q18. Also, on a y/y basis the prices moved by -3% in USD when compared to the average price of 1Q18. However, the average price in EUR was 5% higher.

IFRS 16 changes implemented to our estimates

The effects of IFRS 16 to Finnair’s financials are noteworthy. Lia-bilities in 2018 increased by 1,1b euros and assets by 992 million euros. 2018 EBIT improved from EUR 169m (margin 6,0 %) to EUR 218m (margin 7.7%). We have kept Q1 estimates largely un-changed apart from the changes caused by IFRS16 and the changes in the accounting principle of aircraft frame components. We expect Finnair’s Q1 revenue to be EUR 679m (6 % growth) while foreseeing adj. EBIT of -6m (margin -0.9 %). We keep our rating “HOLD” and TP (EUR 8.0).

Finnair - Delivering on Asian strategy

27.02.2019 | Company report

Finnair’s Asian strategy has proven successful and the remaining seven A350s deliveries in 2019-2022E support strategy execution and growth further. Evolution of competition in short-to-mid-term remains a key risk, in our view. We expect earnings to weaken slightly in 2019E and consider valuation as largely fair. We retain “Hold” rating.

A350 fleet carries from Asia to Europe via shortest route

Finnair’s strategy is based on the geographic location of Helsinki hub, as the shortest route from (North-East) Asia to Europe goes over Helsinki. Finnair is able to serve most Asian routes in 24h rotations, which enables high utilization rate of planes and reduces the need for additional crew. New A350s, 12/19 of which were delivered by the end of 2018, are an essential part of the Asian strategy and form the cornerstone of cost management as they have higher seat capacity, lower maintenance cost and better fuel efficiency vs. the replaced A340s. The remaining seven A350s will be delivered in 2019-2022E, enabling further growth.

New A350s enable growth and balance capacity in 2019E

For 2019E Finnair guides 10% capacity growth (largely based on new A350s) and revenue growth slightly behind capacity. New capacity will be mostly put to Asian routes. This should enable further growth and improve weakened PLFs in European traffic, as a good part of capacity adds in 2018 was short-haul. Key risks for 2019E are demand and competition: demand could soften with economic growth, while competition is expected to increase in traffic between Europe and Asia and in intra-European traffic. Fuel is no longer at record levels, although hedged price should continue to edge up. At present we see adj. EBIT, excl. impact of IFRS 16, to weaken slightly in 2019E, assuming steady fuel.

Valuation appears fair - “Hold” reiterated

On our estimates Finnair’s current P/E multiples are 10.8x for 2019E and 9.7x for 2020E, vs. the 3yr historical NTM average of 10.1x. On P/B Finnair trades 1.2-1.1x when the EUR 200m hybrid removed from equity, while generating ROCE of 8.8% in FY19E vs. our WACC of 8.9%. Overall, Finnair’s current valuation appears largely fair to us. We hence retain “Hold” rating with an ex-div TP of EUR 8.0 (7.3). Our TP values Finnair close to par with Finnair’s 3yr historical NTM P/E (10.1x) on our FY19E estimates.

Finnair - Visibility remains short

18.02.2019 | Company update

Finnair’s Q4 was surprisingly strong, but guidance for 2019E indicates the operating environment will remain at least as tough as in H2. Valuation appears largely fair to us – we hence retain “Hold” rating.

Q4: fuel and yield behind the earnings beat

Finnair’s Q4 adj. EBIT came in well above estimates at EUR +9m vs. EUR -9m Evli and EUR -6m cons. Compared to our estimates the beat was driven by somewhat stronger revenue (EUR 683m vs. EUR 671m) and fuel costs, which were EUR 10m less than what we expected. On the revenue side the beat was driven by unit revenues –RASK declined less than we expected, and yield surprisingly grew by 3.5% while we expected yield decline to continue as increased competition had been flagged during H2.

Increasing competition and potentially softer demand

For 2019E Finnair guides ASK growth of 10% and revenue growth slightly behind ASK. We expected only 5% ASK growth for 2019E. Finnair will receive both of its 2019-delivered new A350s during H1, on top of which the Dec 2018 -delivered A350 will contribute to ASK growth. Added capacity will be mostly put to Asian routes. However, at the same time competition is expected to increase further with capacity increases, especially on routes between Europe and Asia and in intra-European traffic, even though Norwegian’s planned capacity cuts may impact Finnair positively on some routes. At the same time, demand is seen to be at risk of softening with slowdown in economic growth. Increasing competition and potentially softer demand keep visibility short even though fuel appears to have stabilized.

Retaining “Hold”

On our estimates Finnair trades at an EV/EBITDA discount, but at a P/E premium to its primary peers. On P/B Finnair trades 0.9x in FY19E, or 1.1x when the EUR 200m hybrid removed from equity, while generating ROCE of ~8.5% in FY19E, close to our WACC (8.9%). We continue to think valuation does not look too attractive and hence we retain “Hold” rating with TP of EUR 7.3 (6.8). Our TP values the shares at par with Finnair’s 3yr historical P/E on our FY19E estimates.

Finnair - Strong earnings

15.02.2019 | Earnings Flash

Finnair’ Q4 adj. EBIT was clearly better than we expected at EUR +9m vs. our expectation of EUR -9m. Consensus was at -6m. Compared to our estimates the beat looks to be driven by EUR 10m lower fuel costs, and by better revenue. For 2019E Finnair guides 10% capacity growth and revenue growth somewhat behind capacity. We have expected 5% growth for both and hence there is upside to our estimates. Finnair also expects competition to tighten, especially in EU-Asia routes and in short-haul traffic. Dividend is close to estimates. Overall, a good report.

  • Q4 revenue was EUR 683m vs. EUR 671/674m Evli/cons.
  • Q4 adj. EBIT was EUR +9m vs. EUR -9m/-6m Evli/cons views. Compared to our estimates the beat looks to come from lower fuel costs and better revenue in Q4.
  • Absolute costs: actual fuel cost (incl. hedging) was EUR 145m vs. EUR 155m our view. Staff costs were EUR 102m vs. 102m our view. All other OPEX combined were EUR 364m vs. 364m our view.
  • Unit costs: CASK was 6.43 eurocents vs. 6.49 our view, while CASK ex fuel was 5.05 eurocents vs. 5.01 our view. CASK in fixed FX and excl. fuel declined by 4% y/y.
  • Dividend is EUR 0.274 per share vs. 0.30/0.26 Evli/cons.
  • 2019E guidance: Finnair expects capacity growth of about 10% and revenue growth somewhat behind capacity. Adj. EBIT guidance will be provided with Q2 earnings, as usual.

Finnair - Soft traffic continued

10.01.2019 | Preview

Finnair’s traffic came in below our (and consensus) expectations in Q4 and the company appears to have slightly missed its FY2018 guidance ranges for capacity growth (14.8% vs. guidance “above 15%”) and passenger growth (11.6% vs. guidance 12-13%). We have cut Q4 estimates with weaker than expected traffic, whereas our 2019E estimates remain largely unchanged.

Q4 traffic softer than we expected

Finnair’s traffic continued soft in Q4. Overall Q4 capacity (ASK) grew by 9% vs. our 12% expectation, while sold capacity (RPK) grew by only 4% vs. our 10% expectation. Thus passenger load factor (PLF) declined quite notably by 3.4 percentage points in Q4 to 76.9%. This was driven by weakening PLFs in European (- 3.6pp), Asian (-3.5pp) and domestic (-3.0pp) traffic. Finnair flagged in Q3 that competition had tightened especially in the Nordics, which is a likely contributor to soft traffic performance. Finnair stopped reporting unit revenue (RASK) with end-quarter monthly traffic, but we expect it to have continued to decline in Q4.

Fuel price eased somewhat q/q in Q4

As a positive the price of jet fuel eased in November and December, after climbing to a multi-year high in October. On a q/q basis average price moved by -5% in USD and by -3% in EUR compared to average price of Q3. Yet average price for Q4 was still 15% higher y/y in USD and 18% higher in EUR.

Q4 estimates cut

We have cut Q4 estimates and expect Finnair’s Q4 revenue to be EUR 671m (4% growth), while foreseeing adj. EBIT at EUR -9m (margin -1.4%). We foresee FY2018 revenue growth at the low-end of the guided “about 10-11%” range. Our rating (“Hold”) and TP (EUR 6.8) remain intact, with 2019E estimates largely unchanged.

Finnair - Competition and fuel concerns

29.10.2018 | Company update

Finnair’s Q3 earnings were somewhat better than expected, but guidance for FY18E adj. EBIT was cut to reflect increased competition and fuel. Combination of increased competition and higher fuel price keeps the outlook tough. We retain “Hold” rating with TP of EUR 6.8 intact.

Guidance cut due to increased competition and fuel

Finnair cut its guidance for adj. EBIT. Company now expects adj. EBIT to somewhat weaken vs. be flat previously. Guidance was cut to reflect increased competition, especially in the Nordics, and the fuel price increase. Increased capacity by competitors was visible in Q3 traffic and suggests yield compression is likely to continue at least in European traffic in the short-term, despite fuel price has been increasing for almost two years now.

Fuel price looks to be moving up further in Q4

Fuel price looks to be moving up further in Q4, with USD spot prices in October averaging 8% higher compared to the average spot of Q3. Current spot price is 4% higher than the Q3 average.

Challenging outlook – “Hold” intact

On our estimates Finnair trades at an EV/EBITDA discount, but at a P/E premium to its primary peers. On P/B Finnair trades 0.8x in FY18-19E, or 1.0-0.9x when the EUR 200m hybrid removed from equity, while generating ROCE of ~7-8% in FY18-19E, slightly below our WACC. We think valuation does not look too attractive, considering increasing competition and fuel. We retain “Hold” rating with TP of EUR 6.8. Our TP values the shares at a discount to Finnair’s 3yr historical average NTM EV/EBITDA, but close to par with P/E on our FY19E estimates.

Finnair - Guidance cut

25.10.2018 | Earnings Flash

Finnair’ Q3 adj. EBIT came in at EUR 108m, above our estimate (EUR 102m) and consensus (EUR 105m). However, Finnair cut its FY18E guidance and now expects adj. EBIT to be somewhat below last year’s level of EUR 170m, vs. flat previously. Finnair states it is experiencing increased competition in its main markets. We have expected EUR 159m adj. EBIT in 2018E, ie below last year’s EUR 170m. Consensus has been EUR 160m. However, separately released discontinuation of incentive plan for pilots will have a positive EUR 11m adj. EBIT impact in Q4, which with new guidance seems to imply underlying estimates for Q4 adj. EBIT may be too optimistic.

  • Q3 adj. EBITDAR was EUR 184m vs. EUR 177m our view.
  • Q3 adj. EBIT was EUR 108m vs. EUR 102m/105m Evli/cons views. Compared to our estimates the beat comes from lower fuel and staff costs in the quarter.
  • Absolute costs: actual fuel cost (incl. hedging) was EUR 163m vs. EUR 166m our view. Staff costs were EUR 109m vs. 116m our view. All other OPEX combined were EUR 363m vs. 359m our view.
  • Unit costs: CASK was 6.01 eurocents vs. 6.06 our view, while CASK ex fuel was 4.60 eurocents vs. 4.62 our view. CASK in fixed FX and excl. fuel declined by 6.4% y/y. After Q1-Q3’2018 CASK in fixed FX and excl. fuel is down by 6.9%.
  • 2018E guidance cut: Finnair expects capacity growth at least 15% (intact), passenger volume growth of 12- 13% (prev: in line with capacity growth) and revenue growth of 10-11% (prev: slightly lower than capacity growth). Adj. EBIT is expected to be somewhat below last year’s level of EUR 170m (prev: to remain broadly flat). Finnair is experience increased competition in its main markets. We have expected 11% revenue growth and adj. EBIT of EUR 159m for 2018E.

Finnair - Weaker traffic, more expensive fuel

10.10.2018 | Preview

Finnair’s traffic performance in July-September indicate Q3 revenue of EUR 801m. We expected EUR 814m while consensus was at EUR 816/817m. On the cost side fuel moved up further in Q3. We expect earnings to weaken in Q3 after 15 quarters of improvement and have cut FY18- 19E adj. EBIT estimates by ~10%.

Q3 traffic: capacity growth in line, PLF below our estimates

Finnair’s capacity (ASK) continued double-digit growth in Q3 at +14% and was close to our +15% expectation. Sold capacity (RPK), however, grew somewhat less than we expected at +11% vs. +14% our expectation and hence passenger load factor (PLF) came in below our estimate at 84.5% vs. 86.5%. Unit revenue (RASK) declined by 4.6%, ie. at about the same rate as in H1 and what we expected in Q3. Overall, Jul-Sep traffic and revenue came in slightly below our expectations driven by weaker PLF.

Fuel moved up and reached multi-year high at end of Q3

Jet fuel moved up further in Q3. Average price increased by +1% in USD and by +4% in EUR compared to average price of Q2. Average price for Q3 was ~37% higher than last year in USD and ~39% higher in EUR. Fuel reached new multi-year high at the end of Q3. We foresee EUR 60m+ negative earnings impact from higher fuel price in 2018E (incl. FX and hedges but excl. impact of capacity growth), assuming price remains at the average level of Q3 for the remainder of the year.

Estimates cut

Finnair has improved its adj. EBIT for 15 straight quarters, but we expect this trend to turn in Q3, due to higher fuel costs. We foresee Q3 adj. EBIT at EUR 102m vs. EUR 119m last year. Following estimate cuts our FY18-19E adj. EBIT estimates are down by ~10%. With lower estimates and somewhat lower multiples among peers, we cut TP to EUR 6.8 (8.0) and keep “Hold” intact ahead of Q3. We think valuation still does not look too attractive considering the weakening earnings trend.

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Company Facts

Guidance

Capacity (ASK) growth of ~4 percent

Financial targets

Targets for the 2020-2025 strategy period: Comparable EBIT of over 7.5% over the cycle (at constant fuel and currency), after a 12-18 month build-up period. ROCE of over 10% over the cycle (at constant fuel and currency), after a 12-18 month build-up period.

Share price (EUR)


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