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Finnair produced its third consecutive profitable quarter in Q1 and excepts revenues and EBIT to improve significantly year on year. Yet, the carrier remains cautious about the longer-term outlook and its operating environment. Finnair pleased with Q1 but remains cautious.
“We are heading in the right direction, but the road to recovery is a long one. We cannot expect that the current strong demand situation is a permanent one,” said CEO Topi Maner in the Q1 earnings release today.
“Our operating environment remains challenging in many respects, as the fuel price has remained high, inflation has not subsided, interest rates have risen, and the Russian airspace remains closed as the war in Ukraine continues. Therefore, we are determined to continue implementing our strategy, seeking both an increase in unit revenue, and a reduction in unit costs, in order to be able to achieve our financial targets in a normalized demand and capacity environment.”
Finnair announced a strategy review last September that includes measures to improve its operating and profit margins, reduce structural unit costs by €200 million versus 2019, and optimize the network. This includes a more balanced network between Europe and Asia, the Middle East and India as well as North America. Manner said that the optimization of the network has now been completed, with capacity shifted to other routes that offer better opportunities for the medium term. The airline will terminate the short domestic service between Turku and Tampere on May 1 and replace the air service with a bus service to improve profitability and reduce emissions.
Unit revenues improved and Finnair improved distribution and advanced dynamic pricing, resulting in revenues per available seat kilometer (RASK) that were thirty percent better than in 2019 at €8.13 cents. It also deferred the delivery of an Airbus A350-900 from Q1 2025 to Q2 2026, but the delivery of another one in Q4 2024 is unchanged.
A new agreement with its Finland-based cabin crew was announced recently that will help the airline to reduce costs and improve productivity. Following the agreement, Finnair withdrew its initial plan to outsource work outside Finland.
Passenger revenues up by 143 percent
Finnair announced €694.7 million in Q1 revenues, up from €399.8 million in the same period of last year. Passenger revenues were up 143 percent to €553 million, and those of its travel services by 120 percent to €55 million. Ancillary revenues were 24 percent higher to €33 million.
The airline carried 2.6 million passengers, up 71.8 percent year on year, at a 75.1 percent load factor. The airline operated at eighty percent capacity of 2019 or at 86 percent if its wet-lease activities for other airlines are included. Despite the closure of Russian airspace, passenger revenues to Asia were higher than last year and contributed €132 million to the total pax revenues.
Operating expenses were €725 million versus €548.3 million, with fuel costs up by sixty percent to €219.6 million and passenger handling costs by 46 percent to €103.4 million. The operating profit was €8.3 million compared to €-164.9 million in the first quarter of 2022. After a pre-tax loss of €-7.4 million, a net profit of €3.0 million remains versus €-212.8 million last year. Net cash flow from operating activities was €206.8 million. Finnair ended the quarter with €1.6 billion in cash and €958 million in net debt.
Finnair’s visibility for the year is still limited. Fuel prices have recently increased again and will impact expenses, while the effects of inflation and rising interest rates is uncertain. Net debt is still high and there is no sign of a quick reopening of Russian airspace to Asia. These are all factors that affect the airline.
Without being specific, the airline says that “2023 revenue will significantly increase year-on-year, especially as the first half of 2022 was heavily burdened by both the pandemic and the closed Russian airspace. Nonetheless, the company estimates that its revenue will not yet reach the level of 2019.”
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