Finnair Q4 2022 results and Q&A

On Wednesday, we published our Financial Statements Release and today our Annual Report, which is the highlight of Investor Relations’ year. We had a good attendance in our press conference on Wednesday and the investor session had a good number of callers. Thanks to all participants.

Our comparable operating result was positive for the second quarter in a row (18 million euros), as we continued our work to cut costs, boost sales and optimize profits. On the other hand, the market capacity was more limited and the high fuel price was partly transferred to the fares. Thus, the average ticket prices were also at a high level. Also the net result turned profitable for the first time since Q4 2019 due to the weakened US dollar. These are important steps in the right direction, but the road to full-year profitability is still a long and bumpy one. The uncertainty of our operating environment continues as jet fuel is still exceptionally expensive, inflation continues to accelerate and Russian airspace is closed for an indefinite period.

On the other hand, we can say that the three-year crisis phase is now behind us and a recovery phase is underway. There were also positive changes in our operating environment, as Japan opened to travel and China gave up its zero covid policy already in December, which makes it possible for Chinese travel to open. We believe that the travel restrictions will no longer impact our operations on any of our routes after the summer. We also started a strategic cooperation with Qatar Airways by launching daily flights between Copenhagen and Stockholm and Doha from the beginning of November and between Helsinki and Doha from mid-December. Due to this cooperation, which clearly increases the role of Middle East in our network, we also started to report Middle East as a separate traffic area from the beginning of the year.

Our strategy work progressed on other fronts as well. We continued to manage and cut our costs. We concluded the change negotiations and this resulted in a reduction of 150 jobs globally. In addition, we agreed on long-term savings with some personnel groups and reached a negotiation result with the cabin crew, which, however, is still going through an administrative process. We advanced our goal of a sustainable balance sheet by extending the pension premium loan of 600 million euros until 2025. This will maintain our cash funds, even though the biannual installments of 100 million euros will start already in June. Regarding our unit revenue target, we continued our investments in digitalization, dynamic pricing and direct distribution. Thanks to our sales and revenue optimization measures, our unit revenue (RASK) increased by 25% compared to both Q4 2021 and Q4 2019.

We estimate that we will operate during 2023 at 80–85 per cent capacity compared to 2019 (ASKs). The capacity is affected by e.g., the development of demand for routes to China, and potential wet leases. We believe that the strong demand for travel will continue in the short term, which supports our RASK, but the visibility for H2 is weaker due to the economic uncertainty. Based on our estimate, full year revenue will increase considerably year-on-year, but we do not believe that we would reach the level of 2019 yet.

Q&A

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

What explained the Q4 comparable EBIT being somewhat better than the consensus?

Revenue was still driven by the pent-up demand especially in Europe and North America together with industry-wide constrained capacity caused by the labour shortage. Further, our revenue optimization was visible. On top of this, cargo demand combined with elevated cargo yields compared to pre-pandemic era boosted the revenue. On the other hand, the impacts of the remaining COVID-19 restrictions and the closed Russian airspace had an adverse impact on revenue and costs in our Asian traffic. 

Even though the impact of our cost savings programme was visible, as our capacity and revenue increased more than our costs, the exceptionally high fuel price (cost impact of 94 million euros vs. Q4/2021) had a clearly negative impact on our result.

Your net result was also profitable after a long time. What caused this?

This was above all caused by the weakened US dollar quarter-on-quarter. Most of the currency impact was explained by unrealized exchange rate gains related to aircraft lease liabilities, as euro strengthened against dollar.

How did your unit cost strategy target change?

Considering on one hand the market developing more positively than previously anticipated, and on the other hand the continued strong cost inflation, we expect the strengthening of unit revenues to play a bigger role than we previously expected in achieving our target of 5 per cent comparable EBIT starting from mid-2024. 

Our goal is to reduce unit costs significantly from the 2019 level. This includes the permanent cost savings of around 200 million euros implemented during the pandemic, but we are also obviously looking for additional savings from e.g., fleet costs, personnel costs, supplier contracts and premises, as well as structural changes.

How has your cooperation with Qatar Airways started and how does it work?

The cooperation has begun very promisingly. Qatar Airways has been marketing these flights for some time already and, thus, the flights are quite full, which is not typical for completely new routes. Qatar Airways buys a fixed part of the seat and cargo capacity of these flights operated by us. The rest will remain for us to sell. The flights are EBIT profitable for us.

Our cooperation will significantly increase the importance of the Middle East in our network and it will also enable smooth transfers to numerous destinations in e.g., Africa and Asia.

What do you expect from the opening of China?

The opening of China was a surprise, because previously we thought that the zero covid policy would be continued at least until the summer.

With the opening of China, it is expected that the pent-up demand in another important market will realize, and we are naturally monitoring the situation. It is likely that the recovery of travel will first start with domestic flights and gradually expand to international flights as well. Depending on demand, our goal is to increase the number of flights to Shanghai during the summer and restart our flights to Beijing.