Finnair's Q3 results and Q&A
Even though travel restarted in Europe and Cargo had a record quarter, Q3 result was heavily negative. However, operating cash flow turned positive for the first time since Q4 2019.
Erkka Salonen, Director, Investor Relations
Finnair published its Q3 interim report on Tuesday. It was great to see so many familiar faces in our press conference at Finnair HQ after such a long break.
Europe reopened for travel during the quarter. On the other hand, Asia and North America remained closed for the most part for international travel, which was visible in our low passenger numbers and in our clearly negative result. The highlight of the quarter was that our operating cash flow turned positive for the first time since Q4 2019.
Even though only about half of our markets are currently open, we have seen some positive steps towards the re-opening of our long-haul destinations as both the United States and Thailand are welcoming international travellers starting from early November. Singapore has also allowed some international travel, even though Finland has not yet been included in the current list of accepted countries. We believe that some of our Asian markets, such as South Korea and Japan, will follow within few months. We expect China to remain closed at least during H1 2022.
Our Cargo revenue reached a record high as the demand for air cargo was exceptionally strong due to the global supply chain disruptions. Further, the air freight market prices increased more than twofold compared to the pre-pandemic era. We expect that the strong demand will continue at least until the end of 2021, but potentially all the way up to summer 2022. The strong cargo performance supports also our long-haul flights carrying only a limited number of passengers.
We guided that the Q4 comparable operating loss will be of a similar magnitude to Q3 due to the prevailing travel restrictions, but also because of the incremental costs related to the ramped-up capacity and a higher jet fuel price. Further, we estimated that due to the slower recovery of Asian traffic, both during Q1 and Q2 2022, the comparable operating result would be negative. We believe that the operational environment will be closer to the pre-pandemic era in H2 2022. Based on our forecast, we estimate to reach the 2019 traffic levels, as measured in annual ASKs, in 2023. Further, we estimated that the operating cash flow remains positive in Q4 2021.
Questions and answers
We have collected a few of the most-asked questions from Tuesday, together with our answers below.
What explained the Q3 comparable EBIT being slightly better than the analyst consensus?
Cargo demand was exceptionally strong and, therefore, air freight prices surged. On the other hand, our cost savings programme impact was visible as revenue increased clearly more than our operating expenses. Also, the booking curve developed positively during the quarter.
Business travel may not recover to pre-pandemic levels as e.g. online meetings are popular and many companies are seeking cost savings. What kind of impact will this have on Finnair?
As we have already stated, Finnair is mainly a leisure-driven airline. Pre-pandemic, only c. 20% of our passengers were business-related and they generated c. 30% of our passenger revenue.
Even though it is likely that business travel will not recover as fast as leisure travel in the coming years, we believe that there is increasing demand for premium leisure travel. We are about to introduce our new travel class Premium Economy during 2022 to meet this demand.
Why did Finnair choose to commence the operations from Arlanda to the US and Thailand?
Due to the COVID-19 impact, the competition from Arlanda to those destinations is limited. As a result, we felt that there would be sufficient demand. We are also currently able to allocate some of our wide-body fleet to Sweden. Travelling to both countries will open just in time from Sweden, and we are optimistic about this major new initiative.
Flight tickets are currently cheap. How will this impact Finnair?
It is true that it has never been a better time to be buying air travel! However, demand is increasing and, particularly in our case, the gradual opening of Asia will stabilize the competitive environment and allow for yield recovery.
What was the reason that Finnair executed the sale and leaseback transaction covering four A350 aircraft, even though the cash position was fairly strong?
The deal was an attractive one. Moreover, we are preparing well in advance for the 2022 loan and lease repayments totalling more than 600 million euros.
Even though our cash position is currently strong, we still have the undrawn 400-million-euro hybrid loan granted by the Finnish state of which 350 million euros is currently available. For the remaining 50 million euros, we are seeking the EU Commission’s approval. Once drawn, the hybrid loan would improve our cash position but also our equity ratio and our gearing.