Finnair Q3 2024 results and Q&A

We published our third quarter interim report on 29 October. 

Our passenger numbers increased by 9 per cent compared to the previous year, which was in line with the capacity growth. The capacity increased as we returned leased narrow-body aircraft (A320) into our own traffic to European and domestic routes. Passenger revenue fell below the level of the comparison period due to a decrease in ticket prices, but Finnair’s total revenue remained at the level of the previous year thanks to higher ancillary and cargo revenue.

Our comparable operating result was 71.5 million euros (94.3), representing EBIT margin of 8.7 per cent (11.5). The profitability declined from the strong comparison period as unit revenue decreased due to normalising demand. In the third quarter, Finnair’s ticket prices across the entire network decreased by 9 per cent  year-on-year. However, it should be noted that prices were at a record high level during the comparison period. Prices fell in Europe, Asia, and the domestic market due to a slight tightening of competition, increased capacity, and weaker consumer confidence. In North America and the Middle East, prices were slightly up on the back of good demand. Our unit cost, excluding fuel costs, decreased by 4 per cent, demonstrating successful cost management in a situation where our network traffic charges, including navigation fees, increased clearly more than our capacity.

Our operating cash flow (98.9 million euros) was strong and further supported the strengthening of our balance sheet. We continued with modest investments during the quarter, and in addition, our upcoming investment needs are limited. We have repaid all the loans we drew down during the double crisis. We also paid back the remaining 61 million euros of the 400-million-euro bond loan. Consequently, the net debt/EBITDA ratio decreased to 1.8 (2.0), which is within our financial target for the year 2025 (1.0–2.0). The improvement of the balance sheet was also reflected in lower financing costs during the third quarter.

We will receive our next modern, fuel-efficient A350 aircraft in the last quarter of 2024. The aircraft will be allocated to Asian traffic, where the prospects are favourable. In addition, we started the cabin refurbishment of the Embraer 190E aircraft, which we estimate to be completed in H1/2026. 
In doing so, we aim to further improve our customer experience and the competitiveness of our fleet. We have already previously stated that our annual maintenance capex is approximately 80–100 million euros. In the third quarter, our new science-based target to reduce our emission intensity (CO2e/RTK) by 34.5% was validated by the Science Based Targets initiative (SBTi).

For the winter season of 2024/2025, we are adding frequencies to London, Dallas, and Phuket. In addition, Aurinkomatkat has  increased its capacity to Thailand, Madeira, and Gran Canaria. We have also increased domestic flights to the Northern Finland by 12 per cent during the winter season. For the summer season of 2025, we will add more flights to the USA (Chicago, Seattle, Los Angeles, Dallas) and Asia (Osaka, Nagoya, Shanghai) due to favourable outlook.

We reiterated that our revenue in 2024 will be within the range of 3.0–3.2 billion euros. We specified our previous estimate and now expect our comparable EBIT to be within the range of 120–170 million euros in 2024. In addition, we reiterated our previous guidance and plan to increase our total capacity, measured by ASKs, by c. 10 per cent in 2024.

Q&A

We have gathered some questions and answers related to our Q3 result here.

Ancillary sales and cargo again showed strong development during the third quarter. What was the reason for this?

We continuously strive to increase the revenues from ancillary sales. We have been investing in this area for some time. The positive change was mainly explained by the ticket reforms introduced in June 2023, which increased both customers’ freedom of choice and ancillary sales. Advance seat reservations, excess baggage and frequent flyer programme-related revenue were the largest ancillary categories.

The Red Sea situation continued to affect the global freight markets during the third quarter because of the supply chain disruptions that benefitted air cargo, by resulting in stronger demand. Further, the growth of e-commerce benefitted air cargo. With the stronger demand, the risen air cargo prices, especially for flights departing from Asia, led to higher cargo revenue year-on-year.

How much did the lower fuel price contribute to the company's third quarter earnings?

The decrease in the fuel price does not directly reduce the company's costs, because we hedge a significant share of our fuel purchases in accordance with the company's policy. In the third quarter, the fuel price was at 21 per cent lower level in euros year-on-year. Measured in dollars, the price was 20 per cent below the comparison period level. The drop in fuel prices (-24 million euros) was not sufficient to compensate for the impact of capacity growth (+28 million euros) on costs. In addition, the increased capacity in Asian traffic has a cost-increasing effect, as the closure of Russian airspace in 2022 has extended flights to Asia by up to 40 per cent. Our total unit cost including jet fuel (CASK) decreased by 5 per cent caused by the increased capacity, the achieved cost savings and lower jet fuel price.

Why did Finnair change its long-term climate goal?

The emissions challenge of commercial aviation is significant, and we are now first focusing on the next ten years to achieve our science-based climate goal. We also want to emphasize the importance of collaboration to overcome the challenges associated with climate change. We will work in sync with the entire aviation industry to achieve our common net-zero carbon emissions target by 2050. Achieving our climate goals will require investments and cooperation on many fronts. Moreover, the role of emissions compensation is now significantly smaller in our climate work than before. According to the new science-based target (SBTi), we aim to reduce our emissions intensity (CO2e/RTK) by 34.5 per cent by the year 2033 from the level of year 2023.

Unflown ticket liability decreased clearly less during the quarter than in Q3 2023, indicating stronger ticket sales during the busiest travelling quarter. How do you see the demand environment and ticket price development when looking at the fourth quarter?

We are continuously monitoring the development of our bookings and it is true that the liability related to sold tickets decreased during the quarter by only c. 40 million euros despite busy travelling, while in the comparison period, it decreased c. 90 million euros. This shows that we have sold tickets well for the coming quarters and, thus, see an increase in bookings compared to last year. December is typically an active holiday month, but there is correspondingly less business travel. The Christmas holidays fall on weekdays this year, which will slightly support leisure travel in the coming quarter.

We do not expect major changes in ticket prices for the last quarter. It should also be noted that during the last quarter of 2023, ticket prices started to decline from a very high level. Cost pressures, capacity constraints in the industry, and increasing environmental requirements still put pressure on prices. We aim to take care of the company's profitability and at the same time to offer competitive prices to our customers.