Finnair Q4 2021 results and Q&A

Erkka Salonen, Director, Investor Relations

Finnair published its Financial Statements Release and Annual Report yesterday. Again, we had a substantial number of participants at our press conference, as well as a lot of interest in our investor call held online. Our thanks to all the participants.

Europe was already open to travel; in the fourth quarter, our long-haul markets, such as the United States in North America and, for example, Thailand, Singapore and India in Asia, were opening. With this, the recovery of long-haul passenger numbers began. We also launched direct flights to Thailand and the United States from Stockholm Arlanda. Towards the end of the quarter, however, the impacts of the Omicron variant started to be visible in air traffic and in December, several countries reintroduced tighter travel restrictions, again negatively impacting the demand for air travel.

Although the overall trend in our passenger numbers has been positive since the summer of 2021, the numbers are far from normal. The excellent news for the quarter were positive EBITDA for the first time since the last quarter of 2019, very strong operating cash flow (125 million euros) due to the favourable development of the bookings and better-than-expected revenue largely driven by Cargo operations.

Our Cargo business delivered record revenue again, as demand remained exceptionally strong due to global supply chain disruptions and air cargo rates were close to 2.5 times the pre-pandemic levels. We believe that strong demand will continue at least through H1. Our profitable Cargo operations also strongly support our long-haul flights, as some of our Asian routes still have relatively few passengers due to prevailing restrictions.

We guided that the negative impact of Omicron in Q1 will be notable but short-lived. In addition, travel to some Asian countries remains severely restricted. Due to these factors, as well as the costs related to the increase in traffic and higher jet fuel prices, we estimate that the comparable EBIT for Q1 will be of similar magnitude as in Q1 2021 (-143 million euros). We reiterated our previous estimate, which assumes that the comparable EBIT is negative during the first two quarters of the year.

With the exception of China and Hong Kong, we believe that Asian markets, such as Japan and South Korea, will gradually open towards the end of Q2 and that we will edge closer to the pre-pandemic operating environment in H2. According to our current forecasts, we will achieve the annual volume of 2019 in terms of available seat kilometres (ASK) in 2023.

Q&A

We have collected a few of the most-asked questions from Thursday, together with our answers below.

What explained the Q4 comparable EBIT being slightly better than the analyst consensus?

Demand for cargo remained exceptionally strong and therefore air cargo prices remained very high. Ticket bookings and revenue clearly improved, although the weakening effect of Omicron was already reflected in the December revenue. On the other hand, the impact of our cost savings programme was visible as revenue growth clearly outpaced that of expense growth.

What explains the weaker earnings guidance for Q1 than the consensus forecast?

Our guidance is the sum of many factors. The negative impact of Omicron will be reflected in revenue with a delay and, thus, impacts mostly Q1 revenue, even though bookings during the Omicron period were at their lowest in 2021. The negative effects of Omicron also result in additional costs caused by e.g., higher number of employee sick leave. In Asia, demand is weakened by continued travel restrictions. When we add to the equation that we are increasing capacity going into summer 2022, fuel price is increasing and the seasonal effects on cargo, we expect our comparable EBIT to decline significantly in Q1 compared to the previous quarter.

You note that the negative effect of Omicron is short-lived. What is this based on?

Examining our booking data, it appears that the effect of Omicron on passenger demand for travel on Finnair’s network lasted less than two months. Our booking situation has been improving, and demand indications for summer 2022 are encouraging, so the observed decrease in demand and revenue caused by Omicron does not seem persistent in the light of current data.

You will be opening new routes to the United States during the summer season, even though the market is competitive between Europe and North America. Why?

As our main market, Asia, is still severely restricted and travel to the United States is more open, it has been natural to increase our wide-body fleet operations in North America.

We will be opening new routes during the summer season to Dallas and Seattle. In both cities, we receive significant support from our oneworld partners, with American Airlines’ home hub in Dallas and that of Alaska Airlines in Seattle. This allows us to leverage their huge customer base, extensive network, and strong distribution power throughout the North American market.

In February, you introduced a new long-haul travel experience, in which your wide-body aircraft will be offered a completely new premium economy class and the business and economy classes will be renewed. You invested 200 million euros in this. Why did you make such a big investment right now?

This investment in our future has been considered for a long time and most of it has already been paid for. In line with the core of our strategy, we aim to offer a competitive, modern product with excellent travel comfort. We believe that there will be enough demand for premium leisure travel, even if demand from business travelers is less in the future. On the other hand, we are confident that, especially for the premium economy class, there will also be demand from business travelers as a cheaper alternative to the business class.

You announced that you have met your target of 200 million euros in annual, permanent cost savings, based on 2019 volumes, and that the full run-rate impact is visible this year. How will prevailing inflationary pressures affect these cost savings going forward?

Just before our result was published, we agreed on a new two-year CLA with our cabin crew. The first year of the agreement does not include salary increases, and the increases in the second year are also tied to the general cost level development. There are still 2.5 years left from our previously agreed CLA with our pilots.

We have taken inflation into account in our permanent annual cost savings of 200 million euros. At the same time, we are conscious that certain items, such as fuel costs, airport charges and lower-emission flying are additional cost pressures that we are trying to pass on via ticket prices where possible.

What is the impact of the situation in Eastern Europe on your activities?

At the moment, there is little impact, but contingency plans are part of our normal daily lives. We are following the situation closely. Flight safety is our number one priority, and if necessary, we are ready to change the routing of our flights quickly.