Finnair: Dim light at the end of the tunnel

Finnair: Dim light at the end of the tunnel - Evli Research

Aviation industry has faced the worse ever crisis in 2020 due to the COVID-19. Finnair has been forced to scale down its traffic and the ramp-up is expected to start next summer. We expect heavy losses in 20E but also in H1/21E. We keep our rating “HOLD” with TP of EUR 0.60 (0.38).

Strategy focuses on the traffic between Asia and Europe

Finnair’s strategy focuses on the growing traffic between Asia and Europe. The strategy is based on the geographic location of the Helsinki hub: the shortest route from (North-East) Asia to Europe goes over Helsinki. Additionally, the distance between Helsinki and most Asian destinations is such that Finnair is able serve most routes in 24h rotations, which enables high utilization rate of planes and reduces the need for additional crew. The most direct route to Asia is enabled by having Russian overflight rights. Flights through the Siberian corridor from Asia to Europe via Helsinki save ca. 2h on flight time compared to one-stop flights via European hubs and ca. 4h compared to routes via the Middle East.

COVID-19 caused the worst ever crisis

The aviation industry faced the worst ever crisis in 2020 as the COVID-19 pandemic spread from China across the world in early 2020. Global lockdowns and travel restrictions forced also Finnair to scale down its traffic. Finnair estimates that the passenger numbers will recover in 2-3 years. The company continues to operate with a significantly limited network also in Q1/21E and the ramp-up is expected to start in the summer 2021. However, the visibility is extremely weak not only due to the pandemic situation itself but due to different travel restrictions. The company expects 20E revenue and capacity (ASK) to decrease more than 70%.

“HOLD” with TP of EUR 0.60 (0.38)

We expect Finnair’s 20E ASK to decline by 72% y/y and revenue to decrease by 73% y/y while comparable operating loss is expected to be EUR 602m. We expect significant losses also during H1/21E. We expect air travel to recover relatively well in 2022E but passenger numbers are still expected to remain below 2019 levels. Due to Finnair’s targeted annual cost savings of EUR 140m from 2022 onwards, we expect good profitability development after the crisis. Finnair’s share price recently took off due to the optimistic vaccine news. The news are promising but we note that there are no effective vaccines in the global distribution yet. We retain “HOLD” with TP of EUR 0.60 (0.38).

Finnair: Dim light at the end of the tunnel - Evli Research

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Finnair: Dim light at the end of the tunnel - Evli Research

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