Despite Cost Pressures, New Routes And Partnerships May Strengthen Future Prospects

Key Takeaways

• Focus on customer centricity and frequent flyers is poised to drive revenue growth through added value for core customers.
  
• Fleet renewal and integration with partners aim to enhance efficiency and market access but could pressure margins due to rising fuel and landing costs.
  
• Strong financial performance, improved load factors, strategic initiatives, and increased demand in key routes suggest enhanced efficiency and potential for revenue and earnings growth.

Catalysts

Operates in the airline business in North Atlantic, Asia, Europe, Middle East, and internationally.

• Finnair's strategy to focus on customer centricity, particularly targeting frequent flyers, is expected to drive revenue growth by creating further value among core customers.
  
• The company's initiative to renew its fleet of 15 narrow-body aircraft may increase capital expenditures in the short term but is anticipated to enhance long-term operational efficiency and, thus, potentially improve net margins.
  
• The initiation of a strategy process aiming at further integration with oneworld partners like American Airlines, particularly on North Atlantic routes, may drive future revenue through improved connectivity and access to new markets.
  
• Planned capacity increase of 10% for 2025, largely through utilizing new aircraft and expanded flight operations, is aimed at increasing revenue; however, this will depend on corresponding demand and competitive factors.
  
• Foreseen increases in sustainable aviation fuel costs and navigation/landing charges are anticipated to pressure cost structures, possibly compressing net margins.

Finnair Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Finnair Oyj's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 3.0% in 3 years time.
• Analysts expect earnings to reach €104.6 million (and earnings per share of €0.51) by about March 2028, up from €37.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €120.9 million in earnings, and the most bearish expecting €91 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.8x on those 2028 earnings, down from 20.3x today. This future PE is lower than the current PE for the GB Airlines industry at 21.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.2%, as per the Simply Wall St company report.

Finnair Oyj Future Earnings Per Share Growth

Risks

• Finnair's revenue and comparable operating result increased significantly during the fourth quarter of 2024, indicating a strong financial performance that could contribute to stable or rising share prices. This suggests potential revenue and earnings growth.
  
• The company successfully increased its load factors across most geographies, particularly in Asian and North Atlantic routes, suggesting improved utilization of capacity which could lead to higher revenue and profit margins.
  
• Finnair has demonstrated strong cash flow generation, with operating cash flow reaching €613 million, which supports its financial stability and could positively impact net margins and earnings.
  
• They are planning strategic initiatives, such as renewing part of their aircraft fleet and focusing more on customer-centric strategies, which could enhance operational efficiency and future revenue streams.
  
• Increased demand in certain routes and capacity adjustments, as well as the potential for stable or slightly rising ticket prices, especially in the North Atlantic routes, could support revenue growth and profit margins.

Valuation

• The analysts have a consensus price target of €2.9 for Finnair Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.5 billion, earnings will come to €104.6 million, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 11.2%.
• Given the current share price of €3.68, the analyst price target of €2.9 is 26.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.