A thread hadn’t been opened for Finnair yet, so let’s start one.
Finnair (Finski) is perhaps one of the most iconic brands in the eyes of a Finnish investor. Finnair has benefited from its well-timed investments in new aircraft (A350) and its key location between Europe and Asia.
The stock was a rocket last year, but this year it has trended downwards with the P/E ratio being around 9.
The competitive dynamics of the aviation industry are great for the consumer but difficult for airlines and investors: cumulatively, the industry has been loss-making over the last hundred years. In the United States, the paradigm seems to have changed after a strong wave of consolidation, as the market there has concentrated among a few players. The industry is also consolidating in Europe, but will Finnair (Finski) be part of it?
Ryanair CEO Predicts Bankruptcies in the Aviation Industry
“We will see bankruptcies in the winter as the sector is heading for a four-to-five-year downturn, O’Leary told CNBC in connection with the release of Ryanair’s quarterly results.”
The shares will mainly be acquired to implement Finnair’s personnel’s FlyShare share savings program and the long-term share incentive scheme for key personnel.
Well, at least they didn’t start buying at the peaks
Finnair’s stock is incredibly difficult but also quite tricky to own. Yesterday it went down significantly, today it’s up over 6% so far. What is this based on and how high can the stock go?
Okay, now I’ve finished my vacation abroad and flown with Finnair 4 times, taking off and landing.
3 out of 4 flights were on time. The last flight was about 1 hour late at Helsinki-Vantaa → the plane had departed late from its previous destination.
2 flights were completely full - 2 had a bit of space. Was the total load factor around 85%? The planes were A319s and A320s. This was my live spotting experience this time
No offers yet, is the Finnish state ownership a small turn-off? ;-o
Finnair hasn’t been discussed much, now that the stock price has wobbled tens of percentages below last year’s ATH.
I went to chat with CEO Topi Manner about Q1. I must say that Vauramo jumped to Metso at the right time. So many external factors affect the aviation industry that one cannot influence (such as oil prices, macroeconomics, competition), and now many of these factors are creating headwinds for Finnair.
Finnair’s seasonal quarter figures are now out. The company fell quite significantly short of comparative figures and consensus, as revenue was below and costs exceeded forecasts. Challenges compared to the reference period were, as expected, mainly the rise in fuel prices and a strong EUR/USD.
At a quick glance, European ticket sales and Aurinkomatkat turned positive relative to our forecasts, while cargo, Asian ticket sales, and costs remained on the negative side (the cost overrun relative to our forecasts was mainly due to personnel costs and sales, marketing, and distribution costs). The guidance remained unchanged, but comments were relatively soft, so the quieter season is clearly being flown into a thick fog.
The strategy update was also not yet visible, and its publication is likely to be postponed until the CMD (November 12).
Norwegian seems to be discontinuing long-haul flights from Sweden. I wonder if this will ease price pressure for Finnair now that the low-cost airline couldn’t make it profitable.
Otherwise, the share price has already fallen below the target price. Would this be a good time to buy?
Norwegian’s long-haul flights from Stockholm and Copenhagen to North America and Thailand are indeed ending. Especially for pricing on the Bangkok route, which is important for Finnair during the winter season, Norwegian’s decision might provide some support, but it is, of course, only one destination in their Asian portfolio. In contrast, North America is a small market for Finnair, and additionally, the customer base and destination cities have probably overlapped somewhat with Norwegian (the biggest beneficiary of Norwegian’s cuts in North America is likely SAS). Thus, the reduction in supply affects a rather limited part of Finnair’s portfolio, and the competitive situation is unlikely to change significantly for the company’s overall big picture, but of course, the reduction in supply is not detrimental to Finnair.
In summary: Finnair’s strategy, which emphasizes slowing growth and profitability in 2020-2025, is balanced in our opinion, and the company presented a credible set of tools at the CMD to stabilize unit revenues and reduce unit costs. In our view, the stock is already priced quite pessimistically according to the subdued short-term outlook, and the market gives little expectation for the strategy’s success. On the other hand, Finnair’s balance sheet valuation already limits downside to some extent, so we believe the expectation for the coming years is becoming reasonable, even though there are still plenty of risks in the short term.
Ryanair issued a positive profit warning today for the 2020 fiscal year (7/2019-6/2020). Ryanair now expects a net profit of EUR 950-1050 million for the fiscal year (previously EUR 800-900 million), so the midpoint of the range increased by 17%. The turn-of-the-year travel season surprised the company, as strong last-minute bookings boosted volumes and average prices. Early-year advance bookings are also one percent ahead of the comparison period, which the company estimates will have a positive impact on average yields in the early part of the year. On the negative side, Lauda’s loss is becoming deeper than expected, as the price war, especially with Lufthansa in Central Europe, rages fiercely.
The warning sent almost the entire aviation sector (including Finnair) up in Europe today. However, few conclusions can be drawn from the warning regarding Finnair, as the companies hardly compete with each other and operate in different markets anyway. The extremely tight competition in Central Europe also has no clear and direct reflections on Finnair. The slightly improving news flow in the sector (including SAS’s positive profit warning, Norwegian’s capacity reduction) is, of course, positive for Finnair.
On April Fool’s Day 2003, Kauppalehti wrote that SARS had no impact on Finnair’s Asian traffic. Only a few dozen trips had been cancelled. By Midsummer, SARS had collapsed Finnair’s Asian traffic to one third of its normal level.
Finnair’s Far East load factor decreased by 28.9 percentage points to 56 percent. The number of business class passengers to Asia fell by more than half (KL 7.5.2003).
Currently, Finnair is more dependent on Asian flights than 17 years ago. I don’t even dare to guess how it would affect the company’s traffic if China had to isolate other major cities besides Wuhan. Finnair flies to six major cities in mainland China and also to Hong Kong.
I’ll have to add this one to my watchlist.
The risks are already high, and Asia is a central part of Finnair’s business… so this one needs to be “hammered down to rock bottom” once this virus epidemic progresses.
It’s worth listening to Viljakainen’s stories from 7:45 onwards: Historically, this would probably dive to P/B 0.4 - 0.6 levels… no rush to buy before that.
Edit: Knowing the stock’s sensitivity, even the spread of such headlines might be enough for a dip.
Finnair is indeed sensitive to this type of news, and the at least partial realization of a known shock risk is undeniably a shadow over our positive recommendation for the company. A comparison can probably be drawn from SARS, meaning late 2002 and 2003. It could push Finnair’s stock down by roughly 20%, but the recovery was also quick once the WHO and other bodies got the epidemic relatively well under control.
Regarding the historical P/B comparison, it must be emphasized that when price levels of 0.4x-0.6x prevailed, Finnair was a chronically loss-making company and, in the market’s opinion, a so-called “hopeless case” as an investment. However, a lot of good work has been done in the company in the 2010s (savings in the early 2010s, growth in the latter half of the 2010s), the industry has improved (consolidation, efficiency improvements), and the dynamics of the oil market have shifted in a more favorable direction for oil users (growth in US production and a decrease in the weight of the OPEC cartel). Against this background, I believe that for Finnair’s hybrid-adjusted P/B to fall to the historical levels of the early 2010s would require a rather severe macroeconomic downturn. However, a smaller dent in the general economy and/or stock markets should be enough for it to fall clearly below the 1x level.
