Finnair’s Q2 proved another weak quarter due to large costs of industrial action and the North Atlantic capacity increases’ drag on profitability as demand hasn’t been high enough.
ANNONS
Industrial action will ruin FY’25 earnings
Finnair’s EUR 788m Q2 revenue didn’t quite reach the EUR 803m/800m Evli/cons. estimates as North Atlantic ticket prices were lower than expected; the relevant PLFs developed soft over the past quarter, and Finnair sees the route area more challenging than it previously anticipated. Meanwhile Europe and Asia have developed favorably recently and general operational cost increases have mostly been as expected, but industrial action had another EUR 29m direct negative effect on adj. EBIT so that the EUR 10m figure fell short of the EUR 33m/30m Evli/cons. estimates. Finnair expects further EUR 20m direct hit on Q3 results, which makes it hard to see improving EBIT y/y.
Earnings are roughly flat or increasing without the strikes
In our view Finnair would likely see improving EBIT already in Q3 without the costs of industrial action; the increased capacity allocation to North Atlantic can still be a drag on earnings in Q3, but this negative is likely to be outweighed by the much more significant European and Asian routes now developing favorably. Finnair saw some cost line items increase at double-digit rates in H1, but their pace should moderate already in Q3 excluding the costs due to industrial action. The direct costs of industrial action may be limited to EUR 70m, but the indirect consequences also make Finnair somewhat cautious regarding the implied guidance for H2 as the company is at a point where further improvement in PLFs would be very profitable.
Multiples continue to require some patience for now
Finnair could see Q4 EBIT gain y/y even though the comparison period was very strong, but in any case FY’25 results will be weak due to the EUR 70m industrial action bill. Without such costs Finnair’s FY’25 EBIT would be roughly flat y/y; Finnair’s capacity shouldn’t grow significantly next year, but PLFs still have upside potential so that additional revenue growth would be highly profitable. We thus estimate Finnair’s FY’26 EBIT to recover by some EUR 110m. Finnair is valued at almost 21x EV/EBIT on our FY’25 estimates, but the elevated multiple should decrease to about 8x next year. Such a level would be in line with many airline peers. We retain our EUR 2.7 TP and REDUCE rating.
