Finnair Q3 2023 results and the rights issue of EUR 570 million
Q3 was the busiest quarter of the year characterised by strong growth and profitability – EUR 570 million rights issue is the next natural step
Last week, we published our interim report. Although we brought forward the publication date by one week due to the planned rights issue, we had a good attendance at our events. Thank you for your active participation.
Our revenue grew by 13.7 per cent year-on-year to EUR 817 million and our comparable operating result was positive for the fifth time in a row, this time EUR 94 million. The comparable operating profit margin was therefore 11.5%. Driven by the strong operating result, our net result was also positive for the fourth consecutive quarter, amounting to EUR 53 million.
We were profitable on the back of a favourable supply-demand ratio and the successful implementation of our strategy work. Demand remained strong and supply was still limited due to capacity constraints in the market. We were able to take advantage of these favourable market conditions with our balanced network and successful pricing and sales activities. Our actions were also reflected in cost-effectiveness, even though the fuel price increased towards the end of the quarter.
Our Net Promoter Score measuring customer satisfaction was 31, which is still at a good level. Our customers rated Finnair as a five-star airline in APEX's airline review, illustrating the trust and support our customers have in us.
During the quarter, we renewed the Finnair Plus programme and joined Avios. This brings new benefits to our members, as well as new opportunities to collect and use the loyalty currency. We also announced that we are investing in new, larger lounges on the Schengen side of Helsinki Airport. The expanded lounges will be available in the second half of 2024 to meet the needs of a growing number of customers.
We are now executing a rights issue of EUR 570 million, which is the next natural step in implementing our strategy. The gross proceeds from the rights issue will be used to strengthen Finnair's balance sheet and financial position to better manage our remaining financial liabilities and reduce our financing costs, support the implementation of our strategy for sustainable profitable growth as well as to ensure our ability to invest in the future. In connection with the rights issue, we supplemented our key long-term financial targets.
In addition to the previously announced comparable operating profit margin target of 6%, we aim to:
- reach 1-2 times net debt to comparable EBITDA by the end of 2025; and
- restore the company's ability for shareholder distributions from 2025 onwards;
- In addition, we still aim to be carbon neutral by 2045
Our long-term financial targets are based on the following key assumptions:
- the company's total capacity measured in Available Seat Kilometres (ASK) would increase by more than 15% from 2023 to 2025;
- the company's maintenance capex would be EUR 80–100 million annually;
- the company would be able to utilise deferred tax assets of EUR 190 million, which would reduce the amount of corporate tax payable in the medium term; and
- the company would maintain a cash to sales ratio of 30% over time.
We still expect to operate at 80–85% capacity in 2023 compared to 2019 (ASKs), including the agreed wet leases. We specified our previous revenue guidance and now estimate that full-year 2023 revenue will be in the range of EUR 2.9–3.1 billion. In addition, we specified our guidance for the full-year 2023 comparable operating result and now estimate it to be in the range of EUR 160–200 million.
We have gathered some questions related to both the Q3 result and the rights issue, together with our answers below.
What explained the better-than-consensus Q3 comparable operating profit?
Our revenue was boosted by continued strong demand in all our markets and limited capacity throughout the industry due to resource constraints. In addition, our revenue optimisation was clearly visible. Our unit revenue increased by as much as 28 per cent year-on-year in 2019 and by 2 per cent year-on-year.
The impact of our cost savings was visible as our unit costs decreased by 6 per cent year-on-year. The fuel price started to rise towards the end of the quarter, which naturally had a negative impact on our result.
You say that the days of cheap flying are over. Could ticket prices still increase?
Firstly, ticket prices vary seasonally. Secondly, the entire airline industry still faces capacity constraints that are unlikely to fade in the short term. Demand for air travel has also remained strong and there are no direct signs of softening. In addition, with the recent increase in fuel price, it is possible that ticket prices will continue to rise.
You announced that you will renew the cabins of the Embraer fleet of 12 aircraft during 2024 and 2025. How big is the investment and how does it compare to the cabin renewal of your wide-body aircraft?
We are renewing these cabins to align the customer experience within our whole fleet. We are talking about an investment of less than EUR 10 million, so it is a small one if you compare it, for example, with the cabin renewal of our wide-body aircraft, concluding in 2024, in which we are investing EUR 200 million. To date, we have refurbished the cabins of 21 of our 25 wide-body aircraft.
One of the objectives of the rights issue is to restore the company's ability for shareholder distributions from 2025 onwards (based on 2024). Why are you targeting this? Isn’t this just returning the money invested in the rights issue?
The reasons for the rights issue are to strengthen the balance sheet, reduce financing costs, continue strategy implementation, and enable future investments.
As a result of the rights issue, however, we can restore our ability to pay dividends/distribute funds. We think this is important because we are now asking our owners to invest their money and we want to generate a return on this investment in the future. In addition, the rights issue makes it possible to restore the ability to distribute funds much earlier than without it.
More than 19 billion new shares will be issued in the rights offering. On the other hand, 27 new shares may be subscribed for with two subscription rights. Why such large and complex figures? Wouldn't simpler and smaller number have been better?
Several factors must be considered in the mechanics of a rights issue. Firstly, the aim is to ensure the participation of current shareholders in the rights issue, which is why a discount is offered on the share subscription price in relation to the theoretical price of the share ex-rights (TERP). In addition, this discount provides flexibility in case the share price fluctuates during the subscription period. On the other hand, it is better if the subscription right has a higher nominal value, as this generally makes their trading more efficient.
The number of new shares and, on the other hand, the subscription ratio are affected by the size of the rights issue, the amount of mentioned TERP discount and also the share price development prior to the rights issue. The combination of these factors also formed the terms and conditions of this rights issue.
I own Finnair shares, but I don't know what to do next. Where can I get more information about the rights issue?
The most important thing is to be active, as the subscription rights you receive will expire without value if they are not either used to subscribing for new shares or sold within the specified deadlines.
Our rights issue website contains a comprehensive package of related material and information. On the website, you will find, among other things, a more detailed schedule, Q&A related to the offering, a marketing brochure and a prospectus approved by the Financial Supervisory Authority. We highly recommend that you familiarise yourself with this site.