Finnair Q2 2023 results and Q&A

On Friday, we published our half-year report. Despite the mid-summer timing, our events had a good number of participants, so warm thanks to everyone present and calling in.

Our comparable operating result was positive for the fourth consecutive quarter. In total, our comparable EBIT during the last four quarters was 120 million euros. Q2 accounts for more than half of this, as it was EUR 66 million. The comparable EBIT margin was 8.8%. This is a very strong result in the seasonally second strongest quarter. It is even better than in our record year of 2018. Driven by the strong operating result, our net result was also positive for the third time in a row. Part of the net profit of 139 million euros was explained by the re-recognition of previously written down deferred tax assets due to improved profitability and longer-term outlook of our business.

The strong result was mainly due to favourable supply-demand ratios and good progress in our strategy work. Exceptionally strong demand continued and supply was still constrained due to capacity challenges in the market. We were able to make use of the prevailing market conditions with our balanced network and successful pricing and sales inputs. Our cost management work also bore fruit, and fuel price development was favourable.

Our customer satisfaction was still at a good level as the Net Promoter Score was 35. For the 13th time in a row, Finnair was chosen as the best airline in Northern Europe in a Skytrax evaluation based on customer insights.

Our strategy work has progressed well and we have already achieved some of our targets. Thus, we updated our strategy. We raised our longer-term profitability target as we reached our previous comparable EBIT margin target of at least 5% 12–18 months ahead of the set timeframe, i.e. mid-2024, as announced already in connection with our positive profit warning in June. Our new target is to reach a comparable EBIT margin of 6% by the end of 2025.

We have also updated and balanced our strategy themes after restoring the profitability of our operations. In the future, we will increasingly focus on customer needs and data-based retailing, as well as on increasing customer loyalty in all customer segments. We are investing in enhanced use of analytics to offer smoother and more personalised journeys to our customers. We aim to grow with the market with our now optimised fleet as we concluded the multiyear aircraft lease agreement with Qantas. We moved from programme-based cost savings to continuous cost-efficiency improvements to ensure our competitiveness. Further, we are aligning our sustainability targets with the Science Based Targets Initiative, which means moving from carbon offsets to measures that directly reduce our own emissions. We will also invest in Finnair's culture and our people to support employee well-being, customer experience and business results. With all these strategy themes, we aim to maintain our profitability and build a more sustainable balance sheet. As the next step in building a sustainable balance sheet, we intend to call the 200-million-euro hybrid bond at the beginning of September. That alone will reduce our financing costs by 20 million euros annually.

We still expect to fly at 80–85% capacity in 2023 compared to 2019 (ASKs). We also reiterated our previous guidance, in which we estimated that full-year 2023 revenue will grow significantly from 2022, but will not yet reach the 2019 level (3.1 billion euros). In addition, we revised our guidance for full-year 2023 comparable EBIT issued in connection with the positive profit warning and now estimate it to be within the range of 150–210 million euros.

Q&A

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

What explained the clearly better Q2 comparable operating profit than the consensus?

Our revenue was boosted by continued strong demand in all our markets and limited capacity in the aviation sector due to scarce resources in the market. In addition, our revenue optimisation was clearly visible. 

Our cost reductions were also visible, as our unit costs decreased by more than 8 per cent year-on-year. Even though the jet fuel price declined, also our unit costs excluding fuel came down by almost 3 per cent year-on-year.

You re-recognised 99 million euros of deferred tax assets due to your improved profitability and longer-term outlook. Do you still have items potentially to be recognised? 

Yes, there are still 52 million euros of deferred tax assets related to tax losses and c. 12 million euros related to non-deductible interest expenses that could potentially be recognised. Thus, the total amount is c. 64 million euros.

You raised your long-term profitability target and are now targeting a comparable operating profit margin of 6% by the end of 2025. However, based on your guidance, it is possible that you could reach this level already this year. Is the target ambitious enough?

Our business environment is currently exceptional due to the favourable supply-demand ratio, but we assume that the situation will begin to normalise in the longer term. Our target is to achieve a comparable EBIT of 6% also in a more normal business environment.

You have restored your profitability. Is it now time to renew the narrow-body fleet?

We are planning to renew our narrow-body fleet at some point. On the other hand, we have been able to optimise the lifecycle of our older aircraft, so there is no rush to renew the fleet. The renewal will be a major investment and we will carefully assess all the options before making the decision.